-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BgUhc2Rw3HdDvkqoN67aG69Bptr6fS6vXgZGwcmyfGhgYRHK3/3NvA7mqHPh8kTr /wFvKbCKJN4s6jv8QqpAYQ== 0001011438-01-500151.txt : 20010810 0001011438-01-500151.hdr.sgml : 20010810 ACCESSION NUMBER: 0001011438-01-500151 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 20010809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VETERINARY CENTERS OF AMERICA INC CENTRAL INDEX KEY: 0000817366 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE SERVICES [0700] IRS NUMBER: 954097995 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-67128 FILM NUMBER: 1701479 BUSINESS ADDRESS: STREET 1: 12401 WEST OLYMPIC BOULEVARD CITY: LOS ANGELES STATE: CA ZIP: 90064-1022 BUSINESS PHONE: 310-584-65 MAIL ADDRESS: STREET 1: 12401 WEST OLYMPIC BOULEVARD CITY: LOS ANGELES STATE: CA ZIP: 90064-1022 S-1 1 form_s-1.txt FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 9, 2001 REGISTRATION NO. 333-__________ =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 VETERINARY CENTERS OF AMERICA, INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE 0742 95-4097995 (State or Other (Primary Standard (I.R.S. Employer Jurisdiction of Industrial Identification No.) Incorporation or Classification Code Number) Organization) 12401 West Olympic Boulevard Los Angeles, California 90064-1022 (310) 571-6500 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) Robert L. Antin Chief Executive Officer and President 12401 West Olympic Boulevard Los Angeles, California 90064-1022 (310) 571-6500 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) COPIES TO: C.N. FRANKLIN REDDICK III, ESQ. GREGG A. NOEL, ESQ. JULIE M. KAUFER, ESQ. Skadden, Arps, Slate, Meagher & JAMES TSAI, ESQ. Flom LLP Akin, Gump, Strauss, Hauer & Feld, 300 South Grand Avenue LLP Los Angeles, California 90071 2029 Century Park East (213) 687-5000 Los Angeles, California 90067 (310) 229-1000 ----------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. ----------- If any of the securities being registered in this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ----------- CALCULATION OF REGISTRATION FEE =============================================================================== TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF SECURITIES TO BE AGGREGATE REGISTRATION FEE REGISTERED OFFERING PRICE(1) (2) - ------------------------------------------------------------------------------- Common Stock, par value $241,500,000 $60,375 $.01 per share............ =============================================================================== (1) Includes common stock issuable upon exercise of the underwriters' over-allotment option. (2) Estimated solely for the purpose of calculating the registration fee, pursuant to Rule 457(o) under the Securities Act of 1933. ------------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. =============================================================================== SUBJECT TO COMPLETION, DATED AUGUST 8, 2001 [ ] Shares [Logo] VETERINARY CENTERS OF AMERICA, INC. Common Stock Prior to this offering, there has been no public market for our common stock. The initial public offering price of the common stock is expected to be between $ and $ per share. We will apply to have our common stock approved for quotation on The Nasdaq Stock Market's National Market under the symbol "____." The underwriters have an option to purchase a maximum of additional shares to cover over-allotments of shares. INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE .
PROCEEDS TO UNDERWRITING VETERINARY PRICE TO DISCOUNTS AND CENTERS OF PUBLIC COMMISSIONS AMERICA, INC. ----------- ------------- ------------- Per Share....................... $ $ $ Total .......................... $ $ $
Delivery of the shares of common stock will be made on or about , 2001. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ------------------------ CREDIT SUISSE FIRST BOSTON GOLDMAN, SACHS & CO. ------------------------ BANC OF AMERICA SECURITIES LLC TUCKER ANTHONY SUTRO CAPITAL MARKETS WELLS FARGO VAN KASPER, LLC The date of this prospectus is , 2001. - ----------------------------- The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Page 2 DESCRIPTION OF ARTWORK: The gatefold includes the VCA logo and pictures of a VCA laboratory, a VCA animal hospital, VCA laboratory workers, and a veterinarian with a dog. The following text is contained on this gatefold: Antech Diagnostics: Largest network of veterinary diagnostic laboratories in the nation; Established infrastructure serving 15,000 animal hospitals in all 50 states; 85 veterinary specialist consultants; Capitalizing on growing demand for diagnostics in veterinary medicine. VCA animal hospitals: Largest network of free-standing animal hospitals in the nation; 211 hospitals in 33 states at June 30, 2001. Page 3
--------------------- TABLE OF CONTENTS PAGE PAGE Prospectus Summary................... Management........................... Risk Factors......................... Principal Stockholders............... Cautionary Note Regarding Related Party Transactions........... Forward-Looking Statements...... Description of Capital Stock......... Use of Proceeds...................... Description of Indebtedness.......... Dividend Policy...................... Shares Eligible For Future Sale...... Dilution............................. Underwriting......................... Capitalization....................... Notice to Canadian Residents......... Selected Historical Consolidated Financial Data.................. Legal Matters........................ Management's Discussion and Analysis Experts.............................. of Financial Condition and Results of Operations........... Where You Can Find More Information.. Business............................. Index to Consolidated Financial Statements......................
---------------------------------- YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT. We use market data and industry forecasts and projections throughout this prospectus, which we have obtained from market research, publicly available information and industry publications. These sources generally state that the information they provide has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information are not guaranteed. The forecasts and projections are based on industry surveys and the preparers' experience in the industry and there is no assurance that any of the projected amounts will be achieved. Similarly, we believe that the surveys and market research others have performed are reliable, but we have not independently verified this information. DEALER PROSPECTUS DELIVERY OBLIGATION UNTIL __________ (25 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. Page i PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. WE URGE YOU TO READ THIS ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS" SECTION. VETERINARY CENTERS OF AMERICA, INC. OUR BUSINESS We are a leading animal health care services company and operate the largest networks of veterinary diagnostic laboratories and free-standing, full-service animal hospitals in the United States. Our veterinary diagnostic laboratories provide sophisticated testing and consulting services used by veterinarians in the detection, diagnosis, evaluation, monitoring, treatment and prevention of diseases and other conditions affecting animals. Our animal hospitals offer a full range of general medical and surgical services for companion animals. We treat diseases and injuries, provide pharmaceutical products and offer a variety of pet wellness programs, including routine vaccinations, health examinations, diagnostic testing, spaying, neutering and dental care. DIAGNOSTIC LABORATORIES We operate the only full-service, veterinary diagnostic laboratory network serving all 50 states and have a client base over two times that of our largest competitor. Our 15 state-of-the-art, automated diagnostic laboratories service a diverse customer base of over 15,000 animal hospitals, and non-affiliated animal hospitals generated approximately 95% of our laboratory revenue in 2000. We support our laboratories with the industry's largest transportation network, which picks up an average of 20,000 to 25,000 samples daily. We derive a majority of our laboratory revenue from our customers in major metropolitan areas, where we offer twice-a-day pick-up service and same-day results. Outside of these areas, we typically provide test results to veterinarians before 8:00 a.m. the following day. Our diagnostic spectrum includes over 300 different tests in the areas of chemistry, pathology, serology, endocrinology, hematology and microbiology, as well as tests specific to particular diseases. In 2000, we handled approximately 6.4 million requisitions and performed approximately 19.8 million tests. Although modified to address the particular requirements of the species tested, the tests performed in our veterinary laboratories are similar to those performed in human clinical laboratories and utilize similar laboratory equipment and technologies. From 1998 through the twelve months ended June 30, 2001, our laboratory revenue and laboratory EBITDA increased at compounded annual growth rates of 14.8% and 24.5%. In the twelve months ended June 30, 2001, our laboratory EBITDA was $41.9 million, or 33.0% of our laboratory revenue. ANIMAL HOSPITALS At June 30, 2001, we operated 211 animal hospitals in 33 states that were supported by over 750 veterinarians. In addition to general medical and surgical services, we offer specialized treatments for companion animals, including advanced diagnostic services, internal medicine, oncology, ophthalmology, dermatology and cardiology. We also provide pharmaceutical products for use in the delivery of treatments by our veterinarians and pet owners. Our facilities typically are located in high-traffic, densely populated areas and have an established reputation in the community with a stable customer base. Since 2000, our animal hospitals have been connected to an enterprise-wide management information system. This system provides us opportunities to manage our animal hospitals more effectively and to enact best practices throughout our network. From 1998 through the twelve months ended June 30, 2001, our animal hospital revenue and animal hospital EBITDA increased at compounded annual growth rates of 12.7% and 19.0%. In the Page 2 twelve months ended June 30, 2001, our animal hospital EBITDA was $49.4 million, or 19.1% of our animal hospital revenue. OUR OPPORTUNITY We intend to continue to grow by capitalizing on the following market opportunities: o LARGE, GROWING MARKET. The ownership of pets is widespread, with over 62% of U.S. households owning at least one pet, including companion and other animals. The U.S. population of companion animals is approximately 188 million, including about 141 million dogs and cats. The most recent industry data show that over $11 billion was spent on companion animal health care services in 1996, with an annual growth rate of over 9.5% from 1991 through 1996 for spending on dogs and cats. We believe this growth has continued, primarily driven by an increased emphasis on pet health and wellness, continued technological developments driving new and previously unconsidered diagnostic tests, procedures and treatments, and favorable demographic trends supporting a growing pet population. o RAPIDLY GROWING VETERINARY DIAGNOSTIC TESTING SERVICES. We believe that outsourced diagnostic testing is among the fastest growing segments of the animal health care services industry. Reflecting this trend, our laboratory internal revenue growth has averaged 13.1% over the last three fiscal years. The growth in outsourced diagnostic testing resulted from an overall increase in the number of tests requisitioned by veterinarians and from veterinarians' increased reliance on outsourced diagnostic testing rather than in-house testing. The overall increase in the number of tests performed is primarily due to the growing focus by veterinarians on wellness and monitoring programs, the emphasis in veterinary education on utilizing diagnostic tests for more accurate diagnoses and continued technological developments in veterinary medicine leading to new and improved tests. The increased utilization of outsourced testing is primarily due to the relative low cost and high accuracy rates provided by outside laboratories and the diagnostic consulting provided by experts employed by the leading outside laboratories. o ATTRACTIVE CUSTOMER PAYMENT DYNAMICS. The animal health care services industry does not experience the problems of extended payment collection cycles or pricing pressures from third-party payors faced by human health care providers. Outsourced laboratory testing is a wholesale business that collects payments directly from animal hospitals, generally on terms requiring payment within 30 days of the date the charge is invoiced. Fees for animal hospital services are due and typically paid for at the time of the service. For example, over 95% of our animal hospital services are paid for in cash or by credit card at the time of the service. In addition, over the past three fiscal years, our bad debt expense has averaged only 1% of total revenue. COMPETITIVE STRENGTHS We believe we are well positioned for profitable growth due to the following competitive strengths: o MARKET LEADER. We are the market leader in each of the business segments in which we operate. We believe that it would be difficult, time consuming and expensive for new entrants or existing competitors to assemble a comparable nationwide laboratory or animal hospital network. It would be particularly difficult to replicate our team of specialists, transportation network, management and systems infrastructure, the size of our veterinarian group and our customer relationships. o COMPELLING BUSINESS MODEL. Our business is characterized by a stable, recurring and diversified revenue base, high operating margins and strong cash flow. The growth in our Page 3 laboratory revenue, combined with greater utilization of our infrastructure, enabled us to improve our laboratory EBITDA margin from 26.9% in 1998 to 33.0% for the twelve months ended June 30, 2001. Our animal hospitals have generated six consecutive years of positive annual same-facility revenue growth. Due to the operating leverage in our animal hospitals, the increase in animal hospital revenue enabled us to improve our animal hospital EBITDA margin from 16.7% in 1998 to 19.1% for the twelve months ended June 30, 2001. These high margins, combined with our modest working capital needs and low maintenance capital expenditures, provide cash that we can use for acquisitions or to reduce indebtedness. o LEADING TEAM OF SPECIALISTS. Our network of 85 veterinary medicine experts, which we refer to as specialists, provides us with a significant competitive advantage. Our specialists include veterinarians, chemists and other scientists with expertise in pathology, internal medicine, oncology, cardiology, dermatology, neurology and endocrinology. These specialists are available to consult with our laboratory customers, providing a compelling reason for them to use our laboratories rather than those of our competitors, most of whom offer no comparable service. Our team of specialists represents the largest interactive source for readily available diagnostic advice in the veterinary industry and interacts with animal health care professionals over 90,000 times a year. o HIGH QUALITY SERVICE PROVIDER. We believe we have built a reputation as a valuable diagnostic resource for veterinarians and a trusted animal health brand among pet owners. In our laboratories, we maintain rigorous quality assurance programs to ensure the accuracy of the reported results. We calibrate our laboratory equipment several times daily, use only qualified personnel to perform testing and our specialists review all test results outside the range of established norms. As a result, we believe our diagnostic accuracy rate is over 99%. In our animal hospitals, we provide continuing education programs, promote the sharing of professional knowledge and expertise and have developed and implemented a program of best practices to promote quality medical care. o SHARED EXPERTISE AMONG VETERINARIANS. We believe the continued accumulation of veterinary medical knowledge and experience among our veterinarian group enables us to offer new services more rapidly than our competitors, offer higher quality services and remain the leading source of veterinary information for interested companies such as pharmaceutical and pet food companies. BUSINESS STRATEGY Our business strategy is to continue to expand our market leadership in animal health care services through our diagnostic laboratories and animal hospitals. Key elements of our strategy include: o CAPITALIZING ON OUR LEADING MARKET POSITION TO GENERATE REVENUE GROWTH. Our leading market position in each of our business segments positions us to take advantage of favorable growth trends in the animal health care services industry. In our laboratories, we seek to generate revenue growth by capitalizing on the growing number of outsourced diagnostic tests and by increasing our market share. In our animal hospitals, we seek to generate revenue growth by capitalizing on the growing emphasis on pet health and wellness and favorable demographic trends supporting a growing pet population. For example, in 2000 we implemented a senior pet wellness program. The program seeks to promote recurring visits and to increase the average amount spent per visit by bundling laboratory tests and animal hospital services. o LEVERAGING ESTABLISHED INFRASTRUCTURE TO IMPROVE MARGINS. Due to our established networks and the fixed cost nature of our business model, we are able to realize higher margins on incremental revenue from both laboratory and animal hospital customers. For example, given that our nationwide transportation network servicing our laboratory customers Page 4 is a relatively fixed cost, we are able to achieve significantly higher margins on most incremental tests ordered by the same customer when picked up by our couriers at the same time. We estimate that in most cases, we realize a gross margin between 60% and 75% on these incremental tests. o UTILIZING ENTERPRISE-WIDE SYSTEM TO IMPROVE OPERATING EFFICIENCIES. We recently completed the migration of all animal hospital operations to an enterprise-wide management information system. We believe that this common system will enable us to more effectively manage the key operating metrics that drive our business. With the aid of this system, we seek to standardize pricing, expand the services our veterinarians provide, capture unbilled services, increase volume and implement targeted marketing programs. o PURSUING SELECTED ACQUISITIONS. Although we have substantially completed our laboratory infrastructure, we may make selective, strategic laboratory acquisitions. Additionally, the fragmentation of the animal hospital industry provides us with significant expansion opportunities in our animal hospital segment. Depending upon the attractiveness of candidates and the strategic fit with our existing operations, we intend to acquire approximately 15-25 animal hospitals per year primarily utilizing internally generated cash. THE OFFERING Common stock offered ........... _____________ shares Common stock to be outstanding after this offering........... _____________ shares Use of proceeds................. We intend to use the net proceeds from this offering to redeem our outstanding shares of preferred stock and to repay indebtedness. Listing......................... We intend to file an application to have our common stock approved for quotation on The Nasdaq Stock Market's National Market under the symbol "----." ---------------- Unless otherwise indicated, all share information in this prospectus is based on the number of shares outstanding as of June 30, 2001 and: o excludes 1,325,670 shares of common stock issuable upon exercise of outstanding options under our stock incentive plans, at a weighted average exercise price of $0.58 per share; o excludes 1,149,990 shares of common stock issuable upon exercise of outstanding warrants, at a weighted average exercise price of $0.0007 per share; o excludes 2,000,000 shares available for future issuance under our stock incentive plans; and o assumes no exercise of the underwriters' over-allotment option. Page 5 SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA The summary financial data for the years in the period ended December 31, 1998, 1999 and 2000 have been derived from our audited financial statements. The summary financial data for the six months ended June 30, 2000 and 2001 and as of June 30, 2001 have been derived from our unaudited interim financial statements and include, in the opinion of management, all adjustments necessary for a fair presentation of our financial position and operating results for these periods and as of such date. Our results for interim periods are not necessarily indicative of our results for a full year's operations. The pro forma data adjusts the financial data to give effect to this offering and the anticipated use of proceeds. You should read the following information together with "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ---------------------------------- -------------------- 1998 1999 2000 2000 2001 --------- ------------ ---------- --------- --------- (dollars in thousands, except per share amounts) STATEMENTS OF OPERATIONS DATA: Laboratory revenue................ $ 89,896 $103,282 $119,300 $ 60,726 $ 68,384 Animal hospital revenue........... 191,888 217,988 240,624 119,267 137,134 Total revenue (1)................. 281,039 320,560 354,687 177,285 202,729 Gross profit...................... 71,659 88,067 99,900 50,768 61,085 Operating income.................. 38,834 47,016 19,205 28,599 24,232 Net income (loss) available to common stockholders............. $ 16,268 $ 22,357 $(13,802) $ 14,828 $(13,323) ======== ======== ========= ======== ========= Pro forma net loss available to common stockholders (2)......... $(7,063) $ (565) ======== ======== Pro forma basic and diluted loss $ $ per share (2)................... ======== ======== Shares used for computing pro forma basic and diluted loss per share (2)................... OTHER FINANCIAL DATA: EBITDA (3)(4)..................... $ 51,966 $ 64,445 $ 73,526 $ 37,206 $46,510 EBITDA margin (5)................. 18.5% 20.1% 20.7% 21.0% 22.9% Laboratory EBITDA ................ $ 24,215 $ 32,273 $ 38,827 $ 20,679 $23,743 Laboratory EBITDA margin (5) ..... 26.9% 31.2% 32.5% 34.1% 34.7% Animal hospital EBITDA ........... $ 31,975 $ 37,237 $ 42,985 $ 21,068 $27,500 Animal hospital EBITDA margin (5). 16.7% 17.1% 17.9% 17.7% 20.1% Net cash provided by operating activities...................... $27,123 $ 38,467 $ 60,054 $ 26,421 $32,605 Capital expenditures ............. 11,678 21,803 22,555 9,799 6,979 OPERATING DATA: Laboratory internal revenue growth (6)............................. 14.8% 10.9% 13.5% 13.1% 12.0% Animal hospital same-facility revenue growth (7).............. 5.8% 2.6% 7.0% 7.4% 5.5% AS OF JUNE 30, 2001 ---------------------- AS BALANCE SHEET DATA: ACTUAL ADJUSTED(2) --------- ----------- Cash and cash equivalents......... $19,166 Total assets...................... 489,729 Total debt ....................... 368,087 Total redeemable preferred stock . 164,842 Total stockholders' equity (deficit) (95,390) Page 6 (1) Includes other revenue of $5.1 million, $5.1 million and $925,000 for the years ended December 31, 1998, 1999 and 2000; and of $425,000 and $1.0 million for the six months ended June 30, 2000 and 2001. Total revenue is net of intercompany eliminations of $5.8 million, $5.8 million and $6.2 million for the years ended December 31, 1998, 1999 and 2000; and of $3.1 million and $3.8 million for the six months ended June 30, 2000 and 2001. (2) The pro forma data and the balance sheet data as adjusted are presented as if this offering and the application of the net proceeds occurred at the beginning of the periods presented for the pro forma data and at June 30, 2001 for the balance sheet data as adjusted. (3) EBITDA is operating income before depreciation and amortization, and has been adjusted to exclude management fees, recapitalization costs, Year 2000 remediation expense and other non-cash operating items. EBITDA is not a measure of financial performance under generally accepted accounting principles, or GAAP. Although EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity, we understand that EBITDA is widely used by financial analysts as a measure of financial performance. Our calculation of EBITDA may not be comparable to similarly titled measures reported by other companies.
The calculation of EBITDA is shown below (dollars in thousands):
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, ------------------------------- ------------------------- 1998 1999 2000 2000 2001 --------- --------- -------- --------- --------- Operating income .............. $ 38,834 $ 47,016 $ 19,205 $ 28,599 $ 24,232 Management fees (a) ........... -- -- 620 -- 1,240 Depreciation and amortization.. 13,132 16,463 18,878 8,607 12,689 Recapitalization costs......... -- -- 34,823 -- -- Year 2000 remediation expense.. -- 2,839 -- -- -- Other non-cash operating items (b).................... -- (1,873) -- -- 8,349 --------- --------- -------- --------- --------- EBITDA......................... $ 51,966 $ 64,445 $ 73,526 $ 37,206 $ 46,510 ========= ========= ======== ========= =========
(a) Management fees are paid pursuant to our management services agreement and are included in selling, general and administrative expense in our statements of operations. (b) Other non-cash operating items include reversal of restructuring charges of $1.9 million for the year ended December 31, 1999; and a write-down of assets of $8.0 million and stock-based compensation expense of $382,000 for the six months ended June 30, 2001. Numbers may not add due to rounding. (4) EBITDA is the sum of laboratory EBITDA, animal hospital EBITDA and other revenue, less corporate selling, general and administrative expense. Corporate selling, general and administrative expense was $9.3 million, $10.2 million and $9.8 million for the years ended December 31, 1998, 1999 and 2000; and $5.0 million and $7.0 million for the six months ended June 30, 2000 and 2001. (5) EBITDA margin is calculated by dividing EBITDA by total revenue. Laboratory EBITDA margin is calculated by dividing laboratory EBITDA by laboratory revenue. Animal hospital EBITDA margin is calculated by dividing animal hospital EBITDA by animal hospital revenue. Page 7 (6) Laboratory internal revenue growth is calculated using laboratory revenue as reported, adjusted to exclude laboratory revenue of acquired laboratories estimated for the 12 months subsequent to the respective acquisition dates. We estimate our laboratory revenue of acquired laboratories for the 12 months subsequent to the respective acquisition dates based on pre-acquisition historical laboratory revenue information provided to us by the seller increased by our laboratory internal revenue growth rate for the fiscal year prior to acquisition. To determine our laboratory internal revenue growth rate, we compare our laboratory revenue net of laboratory revenue of acquired laboratories to our laboratory revenue as reported for the prior comparable period. We believe this fairly presents our laboratory internal revenue growth for the periods presented, although our calculation may not be comparable to similarly titled measures reported by other companies. (7) Animal hospital same-facility revenue growth is calculated using the combined revenue of the animal hospitals we owned and managed for the entire periods presented. Page 8 RISK FACTORS THE VALUE OF AN INVESTMENT IN VCA WILL BE SUBJECT TO SIGNIFICANT RISKS INHERENT IN OUR BUSINESS. YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK. IF ANY OF THE EVENTS DESCRIBED BELOW OCCUR, OUR BUSINESS AND FINANCIAL RESULTS COULD BE ADVERSELY AFFECTED IN A MATERIAL WAY. THIS COULD CAUSE THE TRADING PRICE OF OUR COMMON STOCK TO DECLINE, PERHAPS SIGNIFICANTLY. RISKS RELATED TO OUR BUSINESS WE MAY BE UNABLE TO SUCCESSFULLY EXECUTE OUR GROWTH STRATEGY AND, AS A RESULT, OUR BUSINESS MAY BE HARMED. Our success depends in part on our ability to build on our position as a leading animal health care services company through a balanced program of internal growth initiatives and selective acquisitions of established animal hospitals and laboratories. If we cannot implement or are not successful in executing these initiatives, our results of operations will be adversely affected. Our internal growth rate may decline and could become negative. Our laboratory internal revenue growth has fluctuated between 10.9% and 14.8% since 1998. Similarly, our animal hospital same-facility revenue growth has fluctuated between 2.6% and 7.0% over the same periods. Even if we are successful implementing our growth strategy, we may not achieve the economies of scale that we have experienced in the past or that we anticipate. Our internal growth may continue to fluctuate and may be below our historical rates. Any reductions in the rate of our internal growth may cause our revenues and margins to decrease. Our historical growth rates and margins are not necessarily indicative of future results. Laboratory internal revenue growth is calculated using laboratory revenue as reported, adjusted to exclude laboratory revenue of acquired laboratories estimated for the 12 months subsequent to the respective acquisition dates. We estimate our laboratory revenue of acquired laboratories for the 12 months subsequent to the respective acquisition dates based on pre-acquisition historical laboratory revenue information provided to us by the seller increased by our laboratory internal revenue growth rate for the fiscal year prior to acquisition. To determine our laboratory internal revenue growth rate, we compare our laboratory revenue net of laboratory revenue of acquired laboratories to our laboratory revenue as reported for the prior comparable period. We calculate our animal hospital same-facility revenue growth using the combined revenue of the animal hospitals we owned and managed for the entire periods presented. These calculations involve a number of assumptions, and our internal growth may not be calculated in the same manner as those of comparable companies. OUR BUSINESS AND RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED IF WE ARE UNABLE TO MANAGE OUR GROWTH EFFECTIVELY. Since January 1, 1996, we have experienced rapid growth and expansion. Our failure to manage our growth effectively may increase our costs of operations and hinder our ability to execute our business strategy. Our rapid growth has placed, and will continue to place, a significant strain on our management and operational systems and resources. If our business grows, we will need to improve and enhance our overall financial and managerial controls, reporting systems and procedures, and expand, train and manage our workforce. We will also need to increase the capacity of our current systems to meet additional demands. DIFFICULTIES WITH THE INTEGRATION OF NEW ACQUISITIONS MAY IMPOSE SUBSTANTIAL COSTS AND DELAYS AND CAUSE OTHER PROBLEMS FOR US. Acquisitions involve a number of risks relating to our ability to integrate an acquired business into our existing operations. The process of integrating the operations of an acquired business, including its personnel, could cause interruptions to our business. Some of the risks we face include: o negative effects on our operating results; Page 9 o impairments of goodwill and other intangible assets; o dependence on retention, hiring and training of key personnel, including specialists; o amortization of intangible assets; and o contingent and latent risks associated with the past operations of, and other unanticipated problems arising in, an acquired business. The process of integration may require a disproportionate amount of the time and attention of our management, which may distract management's attention from its day-to-day responsibilities. In addition, any interruption or deterioration in service resulting from an acquisition may result in a customer's decision to stop using us. For these reasons, we may not realize the anticipated benefits of an acquisition, either at all or in a timely manner. If that happens and we incur significant costs, it could have a material adverse impact on our business. A PROLONGED ECONOMIC DOWNTURN COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS. Our business may be materially adversely affected by prolonged, negative trends in the general economy that reduce consumer spending. Our business depends on the ability and willingness of animal owners to pay for our services. This dependence could make us more vulnerable to any reduction in consumer confidence or disposable income than companies in other industries that are less reliant on consumer spending, such as the human health care industry, in which a large portion of payments are made by insurance programs. OUR SUBSTANTIAL AMOUNT OF DEBT COULD ADVERSELY AFFECT OUR ABILITY TO RUN OUR BUSINESS. We have, and will continue to have, a substantial amount of debt. At June 30, 2001, our debt consisted primarily of o $247.4 million of outstanding borrowings under our credit facility. We have an additional $50 million of available credit under our credit facility; o $119.1 million of outstanding senior notes and senior subordinated notes; and o $1.6 million of other debt. Our substantial amount of debt, including senior and secured debt, as well as the guarantees of our subsidiaries and the security interests in our assets, could impair our ability to operate our business effectively and may limit our ability to take advantage of business opportunities. For example, our indentures and credit facility: o limit our ability to borrow additional funds or to obtain other financing in the future for working capital, capital expenditures, acquisitions, investments and general corporate purposes; o require us to dedicate a substantial portion of our cash flow from operations to pay down our indebtedness, thereby reducing the funds available to use for working capital, capital expenditures, acquisitions and general corporate purposes; o limit our ability to dispose of our assets, create liens on our assets or to extend credit; o make us more vulnerable to economic downturns and reduce our flexibility in responding to changing business and economic conditions; Page 10 o limit our flexibility in planning for, or reacting to, changes in our business or industry; o place us at a competitive disadvantage to our competitors with less debt; and o restrict our ability to pay dividends, repurchase or redeem our capital stock or debt, or merge or consolidate with another entity. The terms of our indentures and credit facility allow us, under specified conditions, to incur further indebtedness, which would heighten the foregoing risks. If compliance with our debt obligations materially hinders our ability to operate our business and adapt to changing industry conditions, we may lose market share, our revenue may decline and our operating results may suffer. WE REQUIRE A SIGNIFICANT AMOUNT OF CASH TO SERVICE OUR DEBT AND EXPAND OUR BUSINESS AS PLANNED. Our ability to make payments on our debt, and to fund acquisitions, will depend on our ability to generate cash in the future. Insufficient cash flow could place us at risk of default under our debt agreements or could prevent us from expanding our business as planned. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our business may not generate sufficient cash flow from operations, our strategy to increase operating efficiencies may not be realized and future borrowings may not be available to us under our credit facility in an amount sufficient to enable us to service our debt or to fund our other liquidity needs. In order to meet our debt obligations, we may need to refinance all or a portion of our debt. We may not be able to refinance any of our debt, on commercially reasonable terms or at all. OUR FAILURE TO SATISFY COVENANTS IN OUR DEBT INSTRUMENTS WILL CAUSE A DEFAULT UNDER THOSE INSTRUMENTS. In addition to imposing restrictions on our business and operations, our debt instruments include a number of covenants relating to financial ratios and tests. Our ability to comply with these covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions. The breach of any of these covenants would result in a default under these instruments. An event of default would permit our lenders to declare all amounts borrowed from them to be due and payable, together with accrued and unpaid interest. Moreover, these lenders would have the option to terminate any obligation to make further extensions of credit under these instruments. If we are unable to repay debt to our senior lenders, these lenders could proceed against our assets. THE SIGNIFICANT COMPETITION IN THE ANIMAL HEALTH CARE SERVICES INDUSTRY COULD CAUSE US TO REDUCE PRICES OR LOSE MARKET SHARE. The animal health care services industry is highly competitive. To compete successfully, we may be required to reduce prices, increase our operating costs or take other measures that could have an adverse effect on our financial condition, results of operations, margins and cash flow. If we are unable to compete successfully, we may lose market share. There are many clinical laboratory companies that provide a broad range of laboratory testing services in the same markets we service. Our largest competitor for outsourced laboratory testing services is Idexx Laboratories, Inc. Also, Idexx and several other national companies provide on-site diagnostic equipment that allows veterinarians to perform their own laboratory tests. Our primary competitors for our animal hospitals in most markets are individual practitioners or small, regional, multi-clinic practices. Also, regional pet care companies and some national companies, including operators of super-stores, are developing multi-regional networks of animal hospitals in markets in which we operate. Page 11 WE MAY EXPERIENCE DIFFICULTIES HIRING SKILLED VETERINARIANS DUE TO PERIODIC SHORTAGES WHICH COULD DISRUPT OUR BUSINESS. Skilled veterinarians are in shortage from time to time in particular regional markets in which we operate animal hospitals. During these shortages, we may be unable to hire enough qualified veterinarians to adequately staff our animal hospitals in these regions, in which event we may lose market share and our revenues and profitability may decline. IF WE FAIL TO COMPLY WITH GOVERNMENTAL REGULATIONS APPLICABLE TO OUR BUSINESS, VARIOUS GOVERNMENTAL AGENCIES MAY IMPOSE FINES, INSTITUTE LITIGATION OR PRECLUDE US FROM OPERATING IN CERTAIN STATES. The laws of many states prohibit business corporations from providing, or holding themselves out as providers of, veterinary medical care. These laws vary from state to state and are enforced by the courts and by regulatory authorities with broad discretion. We operate 51 animal hospitals in 11 states with these laws, including 21 in New York. We may experience difficulty in expanding our operations into other states with similar laws. Although we seek to structure our operations to comply with the corporate practice of veterinary medicine laws of each state in which we operate, given varying and uncertain interpretations of the laws, we may not be in compliance with restrictions on the corporate practice of veterinary medicine in all states. A determination that we are in violation of applicable restrictions on the practice of veterinary medicine in any state in which we operate could have a material adverse effect on us, particularly if we were unable to restructure our operations to comply with the requirements of that state. For example, we currently are a party to a lawsuit in the State of Ohio in which that State has alleged that our management of a veterinary medical group licensed to practice veterinary medicine in that state violates the Ohio statute prohibiting business corporations from providing or holding themselves out as providers of veterinary medical care. On March 20, 2001, the trial court in the case entered summary judgment in favor of the State of Ohio and issued an order enjoining us from operating in the State of Ohio in a manner that is in violation of the state statute. In response, we have restructured our operations in the State of Ohio in a manner that we believe conforms to the state law and the court's order. The Attorney General of the State of Ohio has informed us that it disagrees with our position that we are in compliance with the court's order. We are currently in discussions with the Attorney General's office in the State of Ohio in an attempt to resolve this matter. We may not be able to reach a settlement, in which case we would be required to discontinue our operations in the state. Our five animal hospitals in the State of Ohio have a book value of $6.2 million. If we were required to discontinue our operations in the State of Ohio, we may not be able to dispose of the hospital assets for their book value. All of the states in which we operate impose various registration requirements. To fulfill these requirements, we have registered each of our facilities with appropriate governmental agencies and, where required, have appointed a licensed veterinarian to act on behalf of each facility. All veterinary doctors practicing in our clinics are required to maintain valid state licenses to practice. ANY FAILURE IN OUR INFORMATION TECHNOLOGY SYSTEMS COULD SIGNIFICANTLY INCREASE TESTING TURN-AROUND TIME, REDUCE OUR PRODUCTION CAPACITY AND OTHERWISE DISRUPT OUR OPERATIONS. Our laboratory operations depend, in part, on the continued and uninterrupted performance of our information technology systems. Our growth has necessitated continued expansion and upgrade of our information technology infrastructure. Sustained system failures or interruption in one or more of our laboratory operations could disrupt our ability to process laboratory requisitions, perform testing, provide test results in a timely manner and/or bill the appropriate party. We could lose customers and revenue as a result of a system failure. Our computer systems are vulnerable to damage or interruption from a variety of sources, including telecommunications failures, electricity brownouts or blackouts, malicious human acts and natural disasters. Moreover, despite network security measures, some of our servers are potentially Page 12 vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautions we have taken, unanticipated problems affecting our systems could cause interruptions in our information technology systems. Our insurance policies may not adequately compensate us for any losses that may occur due to any failures in our systems. THE LOSS OF MR. ROBERT L. ANTIN, OUR CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS. We are dependent upon the management and leadership of our Chairman, President and Chief Executive Officer, Robert L. Antin. We have an employment contract with Mr. Antin which may be terminated at the option of Mr. Antin. Mr. Antin is a party to a non-competition agreement that expires on September 20, 2003. We do not maintain any key man life insurance coverage for Mr. Antin. The loss of Mr. Antin could materially adversely affect our business. RISKS ASSOCIATED WITH THIS OFFERING CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING SIGNIFICANT CORPORATE DECISIONS. Upon completion of this offering, our executive officers, directors and principal stockholders will beneficially own, in the aggregate, approximately ___% of our outstanding common stock. As a result, these stockholders will be able to exercise control over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions and will have significant control over our management and policies. The directors elected by these stockholders will be able to make decisions affecting our capital structure, including decisions to issue additional capital stock, implement stock repurchase programs and incur indebtedness. This control may have the effect of deterring hostile takeovers, delaying or preventing changes in control or changes in management, or limiting the ability of our other stockholders to approve transactions that they may deem to be in their best interests. FUTURE SALES OF SHARES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS OUR STOCK PRICE AND MAKE IT DIFFICULT FOR YOU TO RECOVER THE FULL VALUE OF YOUR INVESTMENT IN OUR SHARES. If our existing stockholders sell substantial amounts of our common stock in the public market following this offering or if there is a perception that these sales may occur, the market price of our common stock could decline. Based on shares outstanding as of June 30, 2001, upon completion of this offering we will have outstanding approximately ___ shares of common stock. Of these shares, only the shares of common stock sold in this offering will be freely tradable, without restriction, in the public market. After the lockup agreements pertaining to this offering expire 180 days from the date of this prospectus unless waived, an additional 18,218,205 shares will be eligible for sale in the public market at various times, subject to volume limitations under Rule 144 of the Securities Act of 1933. See "Shares Eligible for Future Sale" for more information regarding shares of our common stock that may be sold by existing stockholders after the closing of this offering. BECAUSE OUR COMMON STOCK IS NOT CURRENTLY TRADED ON A PUBLIC MARKET, THE INITIAL PUBLIC OFFERING PRICE MAY NOT BE INDICATIVE OF THE MARKET PRICE OF OUR COMMON STOCK AFTER THIS OFFERING. YOU MAY BE UNABLE TO RESELL YOUR SHARES AT OR ABOVE THE INITIAL PUBLIC OFFERING PRICE. Prior to our September 2000 recapitalization, our common stock was listed on The Nasdaq Stock Market's National Market. In connection with our recapitalization, we terminated our listing, and there is currently no public market for our common stock. We cannot assure you that an active public market will develop for our common stock following this offering or that, if a market does develop, the market price of our common stock will equal or exceed the public offering price. The public offering price will be determined by negotiations between us and the representatives of the underwriters and will not necessarily be indicative of the market price of the common stock after the offering. The prices at which Page 13 the common stock will trade after the offering will be determined by the marketplace and may be influenced by many factors, including: o the information included in this prospectus and otherwise available to the representatives; o the history and the prospects of the industry in which we compete; o the ability of our management; o our past and present operations; o our prospects for future earnings; o the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies; o market conditions for initial public offerings; and o the general condition of the securities markets at the time of this offering. THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE. Following this offering, the price at which our common stock will trade may be volatile. The stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices of securities. These fluctuations often have been unrelated or disproportionate to the operating performance of publicly traded companies. In the past, following periods of volatility in the market price of a particular company's securities, securities class-action litigation has often been brought against that company. We may become involved in this type of litigation in the future. Litigation of this type is often expensive to defend and may divert management's attention and resources from the operation of our business. OUR STOCK PRICE MAY BE ADVERSELY AFFECTED BECAUSE OUR RESULTS OF OPERATIONS MAY FLUCTUATE SIGNIFICANTLY FROM QUARTER TO QUARTER. Our operating results may fluctuate significantly in the future. If our quarterly revenue and operating results fall below the expectations of securities analysts and investors, the market price of our common stock could fall substantially. We believe that quarter to quarter or annual comparisons of our operating results are not a good indication of our future performance. Historically, when you eliminate the effect of acquisitions, we have experienced higher revenue in the second and third quarters than in the first and fourth quarters. The demand for our veterinary services is higher during warmer months because pets spend a greater amount of time outdoors, where they are more likely to be injured and are more susceptible to disease and parasites. Also, use of veterinary services may be affected by levels of infestation of fleas, heartworms and ticks, and the number of daylight hours. A substantial portion of our costs are fixed and do not vary with the level of demand for our services. Therefore, net income for the second and third quarters at individual animal hospitals and veterinary diagnostic laboratories generally is higher than in the first and fourth quarters. Operating results also may vary depending on a number of factors, many of which are outside our control, including: o demand for our tests; o changes in our pricing policies or those of our competitors; o the hiring and retention of key personnel; Page 14 o wage and cost pressures; o changes in fuel prices or electrical rates; o costs related to acquisitions of technologies or businesses; and o seasonal and general economic factors. YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION AS A RESULT OF THIS OFFERING. The initial public offering price is substantially higher than the book value per share of the common stock. As a result, purchasers in this offering will experience immediate and substantial dilution of $_______ per share in the tangible book value of the common stock from the initial public offering price. TAKEOVER DEFENSE PROVISIONS MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK. Various provisions of Delaware corporation law and of our corporate governance documents may inhibit changes in control not approved by our board of directors and may have the effect of depriving you of an opportunity to receive a premium over the prevailing market price of our common stock in the event of an attempted hostile takeover. In addition, the existence of these provisions may adversely affect the market price of our common stock. These provisions include: o a classified board of directors; o a prohibition on stockholder action through written consents; o a requirement that special meetings of stockholders be called only by our the board of directors; o advance notice requirements for stockholder proposals and nominations; and o availability of "blank check" preferred stock. Page 15 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business," and elsewhere in this prospectus are forward-looking statements. We generally identify forward-looking statements in this prospectus using words like "believe," "intend," "expect," "estimate," "may," "should," "plan," "project," "contemplate," "anticipate," "predict," or similar expressions. These statements involve known and unknown risks, uncertainties, and other factors, including those described in this "Risk Factors" section, that may cause our or our industry's actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. Except as required by applicable law, including the securities laws of the United States, and the rules and regulations of the SEC, we do not plan to publicly update or revise any forward-looking statements after we distribute this prospectus, whether as a result of any new information, future events or otherwise. Page 16 USE OF PROCEEDS We expect to receive approximately $195.0 million in net proceeds from the sale of shares of our common stock in this offering based on the sale of [____] million shares at an assumed initial public offering price of [$____] per share, the midpoint of the offering range set forth on the cover page of this prospectus. If the underwriters exercise their over-allotment option in full, we expect our net proceeds to be approximately $224.3 million. We intend to use the net proceeds from this offering to: o repay approximately $35.0 million of the outstanding principal amount of our 15.5% senior notes due 2010 at a redemption price of 110% of the principal amount, for an aggregate of $38.5 million, plus accrued and unpaid interest; o redeem in full, all outstanding shares of our 14% series A redeemable preferred stock having an aggregate liquidation preference of $83.4 million, plus accrued and unpaid dividends; and o redeem in full, all outstanding shares of our 12% series B redeemable preferred stock having an aggregate liquidation preference of $81.4 million, plus accrued and unpaid dividends. If the underwriters do not exercise their over-allotment option, we intend to use our cash on hand to fully fund these uses. If the underwriters exercise their over-allotment option, any additional net proceeds will be used to repay up to an additional $6.0 million of the outstanding principal amount of our 15.5% senior notes due 2010 at a redemption price of 110% of the principal amount, for an aggregate of $6.6 million, plus accrued and unpaid interest and up to $7.0 million of the outstanding principal amount of our 13.5% senior subordinated notes due 2010 at a redemption price of 110% of the principal amount, for an aggregate of $7.7 million, plus accrued and unpaid interest. Pending application of the net proceeds as described above, we intend to invest the net proceeds in short-term investment grade securities. DIVIDEND POLICY We have not paid cash dividends on our common stock, and we do not anticipate paying cash dividends in the foreseeable future. In addition, our credit facility and the indentures governing our outstanding senior and senior subordinated notes place limitations on our ability to pay dividends or make other distributions in respect of our common stock. Any future determination as to the payment of dividends will be restricted by these limitations, will be at the discretion of our board of directors and will depend on our results of operations, financial condition, capital requirements and other factors deemed relevant by the board of directors, including the General Corporation Law of the State of Delaware, which provides that dividends are only payable out of surplus or current net profits. Page 17 DILUTION At June 30, 2001, we had net tangible book value of $_____ million, or $_____ per share. Net tangible book value per share is equal to our total tangible assets less our total liabilities, divided by the total number of shares of our common stock outstanding. After giving effect to the sale of _________ shares of our common stock at an assumed initial public offering price of $_____ per share, the mid-point of the offering range set forth on the cover of this prospectus, and after deducting the underwriting discount and estimated offering expenses, our as adjusted net tangible book value at June 30, 2001 would have been $_______ million or $____ per share. This represents an immediate increase in net tangible book value of $_____ per share to existing stockholders and an immediate dilution of $_____ per share to new investors purchasing shares of our common stock in this offering. The following table illustrates the per share dilution to the new investors. Assumed initial public offering price $ Net tangible book value per share at June 30, 2001 $ Increase per share attributable to this offering ------- As adjusted net tangible book value per share after this offering ------- Dilution per share to new investors in $ this offering ======= The following table summarizes on an as adjusted basis, as of _______, 2001, the total number of shares of our common stock, the total cash consideration paid and the average price per share paid by the existing stockholders and by the new investors in this offering before deducting the underwriting discount and estimated offering expenses:
SHARES TOTAL AVERAGE PURCHASED CONSIDERATION PRICE ---------------- ----------------- PER NUMBER PERCENT AMOUNT PERCENT SHARE ------ ------- ------ ------- -------- Existing stockholders...... New investors.............. ------ ------- ------- ------- -------- Total................... ====== ======= ======= ======= ========
The foregoing discussion and table assume no exercise of any stock options or warrants outstanding as of June 30, 2001. As of June 30, 2001, there were options or warrants outstanding to purchase a total of _________ shares of our common stock and _______ shares reserved for issuance pursuant to future grants of options under our 1996 Stock Incentive Plan and our 2001 Stock Incentive Plan. To the extent that any of these shares are issued, there will be further dilution to new investors. See "Capitalization," "Management" and Note 10 to our Consolidated Financial Statements. Page 18 CAPITALIZATION The following table sets forth our capitalization and cash and cash equivalents as of June 30, 2001: o on an actual basis; and o as adjusted to give effect to the sale of [____] shares of our common stock at an assumed initial public offering price of [$___] per share, which is the mid-point in the offering range set forth on the cover page of this prospectus, and the intended application of the net proceeds.
AS OF JUNE 30, 2001 ---------------------------- ACTUAL AS ADJUSTED ---------- ------------ (dollars in millions) Cash and cash equivalents $ 19.2 $ 10.9 ========== ============ Total debt, including current portion: Credit facility...................... Revolving credit facility (1)...... $ -- $ -- Term loan A facility............... 49.3 49.3 Term loan B facility............... 198.1 198.1 Senior subordinated notes............ 20.0 20.0 Senior notes......................... 112.4 77.4 Other debt........................... 1.6 1.6 Unamortized discount................. (13.3) (9.9) ---------- ----------- Total debt......................... 368.1 336.5 ---------- ----------- Series A redeemable preferred stock, $.01 par value; 3,000,000 shares authorized, 2,998,408 shares issued and outstanding, actual; no shares issued and outstanding, as adjusted.. 83.4 -- ---------- ----------- Series B redeemable preferred stock, $.01 par value; 3,000,000 shares authorized, 2,970,822 shares issued and outstanding, actual; no shares issued and outstanding, as adjusted........................... 81.4 -- ---------- ----------- Stockholders' equity: Common stock, $.01 par value; 24,000,000 shares authorized, 17,524,000 shares issued and outstanding, actual; 75,000,000 shares authorized and _______ shares issued and outstanding, as adjusted.. 0.2 Additional paid-in capital........... 19.4 Notes receivable from stockholders... (0.5) (0.5) Accumulated deficit.................. (113.4) (117.8) Accumulated comprehensive loss....... (1.1) (1.1) ---------- ------------ Total stockholders' equity (deficit): ........................ (95.4) ---------- ------------ Total capitalization............... $ 437.5 $ ========== ============ ------------------------ (1) The revolving credit facility provides for additional borrowings of up to $50.0 million. (2) Share information is based on the number of shares outstanding as of June 30, 2001; and o excludes 1,325,670 shares of common stock issuable upon exercise of outstanding options under our stock incentive plans, at a weighted average exercise price of $0.58 per share; o excludes 1,149,990 shares of common stock issuable upon exercise of outstanding warrants, at a weighted average exercise price of $0.0007 per share; Page 19 o excludes 2,000,000 shares available for future issuance under our stock incentive plans; and o assumes no exercise of the underwriters' over-allotment option.
Page 20 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA The selected historical consolidated financial data as of and for the years ended December 31, 2000, 1999, 1998, 1997 and 1996 have been derived from our audited financial statements. The financial statements were audited by Arthur Andersen LLP. The selected historical consolidated financial data as of and for the six months ended June 30, 2001 and 2000 have been derived from our unaudited interim financial statements and include, in the opinion of management, all adjustments necessary for a fair presentation of our financial position and operating results for those periods and as of those dates. Our results for interim periods are not necessarily indicative of our results for a full year's operations. You should read the selected financial data presented below together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes. Our audited consolidated financial statements as of December 31, 2000 and 1999 and for each of the three years in the period ended December 31, 2000 and our unaudited, consolidated financial statements as of and for the six months ended June 30, 2001 and for the six months ended June 30, 2000 are included in this prospectus.
SIX MONTHS ENDED ENDED JUNE 30, YEAR ENDED DECEMBER 31, -------------------- ----------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 --------- --------- --------- --------- -------- --------- ---------- (dollars in thousands, except per share amounts) STATEMENTS OF OPERATIONS DATA: Laboratory revenue..... $ 68,384 $ 60,726 $119,300 $103,282 $89,896 $ 68,997 $ 56,774 Animal hospital revenue ............. 137,134 119,267 240,624 217,988 191,888 165,848 120,110 Other revenue (1)...... 1,000 425 925 5,100 5,100 5,764 8,674 Intercompany........... (3,789) (3,133) (6,162) (5,810) (5,845) (4,696) (4,130) --------- --------- --------- --------- -------- --------- ---------- Total revenue.......... 202,729 177,285 354,687 320,560 281,039 235,913 181,428 Direct costs........... 141,644 126,517 254,787 232,493 209,380 178,630 138,854 --------- --------- --------- --------- -------- --------- ---------- Gross profit......... 61,085 50,768 99,900 88,067 71,659 57,283 42,574 Selling, general and administrative....... 15,815 13,562 26,994 23,622 19,693 17,676 19,735 Depreciation and amortization......... 12,689 8,607 18,878 16,463 13,132 11,199 7,496 Recapitalization costs. -- -- 34,823 -- -- -- -- Year 2000 remediation expense.............. -- -- -- 2,839 -- -- -- Restructuring and merger costs......... -- -- -- -- -- -- 5,690 Other non-cash operating items...... 8,349 -- -- (1,873) -- -- 12,424 --------- --------- --------- --------- -------- --------- ---------- Operating income 24,232 28,599 19,205 47,016 38,834 28,408 (2,771) (loss)............... Net interest expense... 22,070 4,700 19,892 9,449 8,832 7,411 3,325 Other (income) expense. 1,099 (3,200) 1,800 -- -- -- -- --------- --------- --------- --------- -------- --------- ---------- Income (loss) before minority interest, provision for income taxes and extraordinary item.. 1,063 27,099 (2,487) 37,567 30,002 20,997 (6,096) Minority interest in income of subsidiaries......... 700 515 1,066 850 780 424 6,577 Provision for income taxes................ 3,466 11,756 2,199 14,360 12,954 9,347 1,959 Extraordinary loss on early extinguishment of debt (net of taxes).. -- -- 2,659 -- -- -- -- Increase in carrying amount of redeemable preferred stock...... 10,220 -- 5,391 -- -- -- -- --------- --------- --------- --------- -------- --------- ---------- Net income (loss) available to common stockholders........ $(13,323) $ 14,828 $(13,802) $ 22,357 $16,268 $ 11,226 $ (14,632) ========= ========= ========= ========= ======== ========= ========== Basic earnings (loss) $ (0.76) $ 0.05 $ (0.06) $ 0.07 $ 0.05 $ 0.04 $ (0.06) per share............ Diluted earnings (loss) per share............ $ (0.76) $ 0.04 $ (0.06) $ 0.07 $ 0.05 $ 0.04 $ (0.06) Shares used for computing basic earnings (loss) per share................ 17,524 318,390 234,055 315,945 305,250 294,390 239,130 Shares used for computing diluted earnings (loss) per share................ 17,524 365,325 234,055 329,775 329,100 315,195 239,130 Page 21 OTHER FINANCIAL DATA: EBITDA (2)(3) $ 46,510 $ 37,206 $ 73,526 $ 64,445 $51,966 $ 39,607 $ 22,839 EBITDA margin (4)...... 22.9% 21.0% 20.7% 20.1% 18.5% 16.8% 12.6% Laboratory EBITDA ..... $ 23,743 $ 20,679 $ 38,827 $ 32,273 $24,215 $ 20,142 $ 16,565 Laboratory margin (4).. 34.7% 34.1% 32.5% 31.2% 26.9% 29.2% 29.2% Animal hospital EBITDA .............. $ 27,500 $ 21,068 $ 42,985 $ 37,237 $ 31,975 $ 23,243 $ 15,794 Animal hospital margin (4)........... 20.1% 17.7% 17.9% 17.1% 16.7% 14.0% 13.1% Net cash provided by operating activities .......... $ 32,605 $ 26,421 $ 60,054 $ 38,467 $ 27,123 $ 22,674 $ 1,603 Capital expenditures... 6,979 9,799 22,555 21,803 11,678 7,241 6,962 BALANCE SHEET DATA (AT PERIOD END): Cash and cash equivalents.......... $ 19,166 $ 1,099 $ 10,519 $ 10,620 $ 8,977 $ 19,882 $ 29,621 Net working capital.... 449 3,391 4,734 9,605 6,569 (4,454) (10,221) Total assets........... 489,729 446,889 483,070 426,500 393,960 386,089 354,009 Total debt ............ 368,087 156,507 362,749 161,535 159,787 173,875 148,822 Total redeemable 164,842 -- 154,622 -- -- -- -- preferred stock ..... Total stockholders' (95,390) 247,692 (81,865) 231,229 202,685 180,851 167,350 equity (deficit)..... ---------------- (1) Other revenue includes consulting fees of $1.0 million and $425,000 for the six months ended June 30, 2001 and 2000; and of $6.2 million, $5.8 million, $5.8 million and $4.7 million for the years ended December 31, 2000, 1999, 1998 and 1997. For the years ended December 31, 1997 and 1996 other revenue also includes revenue from our pet product joint venture; we transferred the control of the joint venture to our joint venture partner in February 1997. (2) EBITDA is operating income (loss) before depreciation and amortization, and has been adjusted to exclude management fees, recapitalization costs, Year 2000 remediation expense and other non-cash operating items. EBITDA is not a measure of financial performance under generally accepted accounting principles, or GAAP. Although EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity, we understand that EBITDA is widely used by financial analysts as a measure of financial performance. Our calculation of EBITDA may not be comparable to similarly titled measures reported by other companies.
The calculation of EBITDA is shown below (dollars in thousands):
SIX MONTHS ENDED JUNE 30 YEAR ENDED DECEMBER 31, -------------------- ---------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 --------- --------- --------- --------- -------- --------- ---------- Operating income (loss) .............. $ 24,232 $ 28,599 $ 19,205 $ 47,016 $ 38,834 $ 28,408 $ (2,771) Management fees (a).... 1,240 -- 620 -- -- -- -- Depreciation and amortization......... 12,689 8,607 18,878 16,463 13,132 11,199 7,496 Recapitalization costs................ -- -- 34,823 -- -- -- -- Year 2000 remediation expense.............. -- -- -- 2,839 -- -- -- Restructuring and merger costs......... -- -- -- -- -- -- 5,690 Other non-cash operating items (b) ................. 8,349 -- -- (1,873) -- -- 12,424 -------- -------- -------- -------- -------- -------- --------- EBITDA................. $ 46,510 $ 37,206 $ 73,526 $ 64,445 $ 51,966 $ 39,607 $ 22,839 ======== ======== ======== ======== ======== ======== =========
(a) Management fees are paid pursuant to our management services agreement and are included in selling, general and administrative expense in our statements of operations. (b) Other non-cash operating items include a write-down of assets of $8.0 million and stock-based compensation expense of $382,000 for the six months ended June 30, 2001; reversal of restructuring charges of $1.9 million for the year ended December 31, 1999; reversal of restructuring charges of $2.1 million and restructuring charges of $2.1 million for the year ended December 31, 1997; and restructuring charges of $2.9 million and a write-down of assets of $9.5 million for the year ended December 31, 1996. Numbers may not add due to rounding. Page 22 (3) EBITDA is the sum of laboratory EBITDA, animal hospital EBITDA and consulting fees included in other revenue, less corporate selling, general and administrative expense. For the years ended December 31, 1997 and 1996, EBITDA also includes EBITDA of our pet products joint venture of $168,000 and a loss of $1.1 million. Corporate selling, general and administrative expense was $7.0 million and $5.0 million for the six months ended June 30, 2001 and 2000; and $9.8 million, $10.2 million, $9.3 million, $8.6 million and $8.4 million for the years ended December 31, 2000, 1999, 1998, 1997 and 1996. (4) EBITDA margin is calculated by dividing EBITDA by total revenue. Laboratory EBITDA margin is calculated by dividing laboratory EBITDA by laboratory revenue. Animal hospital EBITDA margin is calculated by dividing animal hospital EBITDA by animal hospital revenue. Page 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS TOGETHER WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. SOME OF THE INFORMATION CONTAINED IN THIS DISCUSSION AND ANALYSIS OR SET FORTH ELSEWHERE IN THIS PROSPECTUS, INCLUDING INFORMATION WITH RESPECT TO OUR PLANS AND STRATEGIES FOR OUR BUSINESS, INCLUDES FORWARD-LOOKING STATEMENTS THAT INVOLVE RISK AND UNCERTAINTIES. YOU SHOULD REVIEW THE "RISK FACTORS" SECTION OF THIS PROSPECTUS FOR A DISCUSSION OF IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE RESULTS DESCRIBED IN OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN. OVERVIEW We are a leading animal health care services company and operate the largest networks of veterinary diagnostic laboratories and free-standing, full-service animal hospitals in the United States. Our network of veterinary diagnostic laboratories provides sophisticated testing and consulting services used by veterinarians in the detection, diagnosis, evaluation, monitoring, treatment and prevention of diseases and other conditions affecting animals. Our animal hospitals offer a full range of general medical and surgical services for companion animals. We treat diseases and injuries, offer pharmaceutical products and perform a variety of pet wellness programs, including routine vaccinations, health examinations, diagnostic testing, spaying, neutering and dental care. Our company was formed in 1986 by Robert Antin, Arthur Antin and Neil Tauber, who have served since our inception as our Chief Executive Officer, Chief Operating Officer and Senior Vice President of Development, respectively. During the 1990s, we established a premier position in the veterinary diagnostic laboratory and animal hospital markets through both internal growth and acquisitions. By 1997, we achieved a critical mass, building a laboratory network of 12 laboratories servicing animal hospitals in all 50 states and completing acquisitions for a total of 160 animal hospitals. At June 30, 2001, our laboratory network consisted of 15 laboratories serving all 50 states and our animal hospital network consisted of 211 animal hospitals in 33 states. We are focusing primarily on generating internal growth to increase revenue and profitability. In order to augment internal growth, we may selectively acquire laboratories and intend to acquire approximately 15-25 animal hospitals per year, depending upon the attractiveness of candidates and the strategic fit with our existing operations. The following table summarizes our growth in facilities for the periods presented:
Six Months Ended Year Ended June 30, December 31, ----------------- ---------------------- 2001 2000 2000 1999 1998 ------- ------ ------ ------ ------ Laboratories: Beginning of period 15 13 13 12 12 Acquisitions & new facilities -- 2 3 3 1 Relocated into otherlabs operated by us -- (1) (1) (2) (1) ------- ------ ------ ------ ------ End of period 15 14 15 13 12 ======= ====== ====== ====== ====== Animal hospitals: Beginning of period 209 194 194 168 160 Acquisitions 13 9 24 39 11 Relocated into hospitals operated by us (8) (3) (8) (11) (1) Sold or closed (3) -- (1) (2) (2) ------- ------ ------ ------ ------ End of period 211 200 209 194 168 ======= ====== ====== ====== ====== Owned at end of period 160 150 157 149 145 Managed at end of period 51 50 52 45 23
Page 24 We were a publicly traded company from 1991 until September 2000, when we completed a recapitalization with an entity controlled by Leonard Green & Partners. The recapitalization was financed by: o the contribution of $155.0 million by a group of investors led by Leonard Green & Partners, o borrowings of $250.0 million under a $300.0 million credit facility, o the issuance of an aggregate of $100.0 million of senior notes, and o the issuance of an aggregate of $20.0 million of senior subordinated notes. BASIS OF REPORTING GENERAL We report our operations in three segments: laboratory, animal hospital and corporate. REVENUE RECOGNITION Revenue is recognized only after the following criteria are met: o there exists adequate evidence of the transaction, o delivery of goods has occurred or services have been rendered, and o the price is not contingent on future activity and collectibility is reasonably assured. LABORATORY REVENUE A portion of laboratory revenue is intercompany revenue that was generated by providing laboratory services to our animal hospitals. Laboratory internal revenue growth is calculated using laboratory revenue as reported, adjusted to exclude laboratory revenue of acquired laboratories estimated for the 12 months subsequent to the respective acquisition dates. We estimate our laboratory revenue of acquired laboratories for the 12 months subsequent to the respective acquisition dates based on pre-acquisition historical laboratory revenue information provided to us by the seller increased by our laboratory internal revenue growth rate for the fiscal year prior to acquisition. To determine our laboratory internal revenue growth rate, we compare our laboratory revenue net of laboratory revenue of acquired laboratories to our laboratory revenue as reported for the prior comparable period. We believe this fairly presents our laboratory internal revenue growth for the periods presented, although our calculation may not be comparable to similarly titled measures reported by other companies. ANIMAL HOSPITAL REVENUE Animal hospital revenue is comprised of revenue of the animal hospitals that we own and the management fees of animal hospitals that we manage. Certain states prohibit business corporations from providing or holding themselves out as providers of veterinary medical care. In these states, we enter into arrangements with a veterinary medical group that provides all veterinary medical care, although we manage the administrative functions associated with the operation of the animal hospitals. In return for our services, the veterinary medical group pays us a management fee. We do not consolidate the operations of animal hospitals that we manage. However, for purposes of calculating same-facility revenue growth in our animal hospitals, we use the combined revenue of animal hospitals owned and managed for the entire periods presented. Page 25 OTHER REVENUE Other revenue is comprised of consulting fees from Heinz Pet Products relating to the marketing of its proprietary pet food. GROSS PROFIT Laboratory gross profit is comprised of laboratory revenue less all direct costs of laboratory services, including salaries of veterinarians, technicians and other non-administrative, laboratory-based personnel, facilities rent, occupancy costs and supply costs. Animal hospital gross profit is comprised of animal hospital revenue less all costs of services and products at the hospitals, including salaries of veterinarians, technicians and all other hospital-based personnel employed by the hospitals we own, facilities rent, occupancy costs, supply costs and costs of goods sold associated with the retail sales of pet food and pet supplies. Other gross profit is comprised of other revenue which has no attributable direct costs. SELLING, GENERAL AND ADMINISTRATIVE Our selling, general and administrative expense is divided between our laboratory, animal hospital and corporate segments. Laboratory selling, general and administrative expense consists primarily of sales and administrative personnel and selling, marketing and promotional expense. Animal hospital selling, general and administrative expense consists primarily of field management and administrative personnel, recruiting and marketing expense. Corporate selling, general and administrative expense consists of administrative expense at our headquarters, including the salaries of corporate officers, professional expense, rent and occupancy costs. EBITDA EBITDA is operating income before depreciation and amortization, and has been adjusted to exclude management fees paid pursuant to our management services agreement, recapitalization costs, Year 2000 remediation expense and other non-cash operating items. Corporate EBITDA is comprised of other revenue less corporate selling, general and administrative expense. EBITDA is not a measure of financial performance under generally accepted accounting principles, or GAAP. Although EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity, we understand that EBITDA is widely used by financial analysts as a measure of financial performance. Our calculation of EBITDA may not be comparable to similarly titled measures reported by other companies. RESULTS OF OPERATIONS The following table sets forth components of our statements of operations data expressed as a percentage of revenue for the indicated periods:
Six Months Ended June 30, Year Ended December 31, ------------------ ---------------------------- 2001 2000 2000 1999 1998 --------- ------- -------- ------- -------- Revenue: Laboratory 33.7% 34.3% 33.6% 32.2% 32.0% Animal hospital 67.6 67.3 67.8 68.0 68.3 Other 0.5 0.2 0.3 1.6 1.8 Intercompany (1.8) (1.8) (1.7) (1.8) (2.1) --------- ------- -------- ------- -------- Total revenue 100.0 100.0 100.0 100.0 100.0 Direct costs 69.9 71.4 71.8 72.5 74.5 --------- ------- -------- ------- -------- Gross profit 30.1 28.6 28.2 27.5 25.5 Selling, general and administrative 7.8 7.6 7.6 7.4 7.0 Depreciation and amortization 6.2 4.9 5.4 5.1 4.7 Recapitalization costs -- -- 9.8 -- -- Year 2000 remediation expense -- -- -- 0.9 -- Other non-cash operating items 4.1 -- -- (0.6) -- Page 26 Operating income 12.0 16.1 5.4 14.7 13.8 Interest expense, net 10.9 2.6 5.6 2.9 3.1 Other (income) expense 0.5 (1.8) 0.5 -- -- Minority interest 0.4 0.3 0.3 0.3 0.3 Income tax provision 1.7 6.6 0.6 4.5 4.6 Extraordinary loss on early extinguishment of debt -- -- 0.8 -- -- --------- ------- -------- ------- -------- Net income (loss) (1.5)% 8.4% (2.4)% 7.0% 5.8% ========= ======= ======== ======= ========
SIX MONTHS ENDED JUNE 30, 2001 AND 2000 REVENUE The following table summarizes our revenue for the six months ended June 30, 2001 and 2000 (dollars in thousands, unaudited):
Percentage 2001 2000 Change --------- -------- ----------- Laboratory $ 68,384 $ 60,726 12.6% Animal hospital 137,134 119,267 15.0% Other 1,000 425 Intercompany (3,789) (3,133) --------- --------- Total revenue $202,729 $177,285 14.4% ========= =========
LABORATORY REVENUE Laboratory revenue increased $7.7 million, or 12.6%, for the six months ended June 30, 2001 compared to the six months ended June 30, 2000. The increase primarily was due to internal growth of 12.0%, which resulted from an increase in the overall number of tests and requisitions and an increase in the average revenue per requisition. These increases primarily were due to the continued emphasis on selling our pet health and wellness programs and the implementation of a price increase for most tests in February 2001. ANIMAL HOSPITAL REVENUE The following table summarizes our animal hospital revenue as reported and the combined revenue of animal hospitals that we owned and managed had we consolidated the operating results of the animal hospitals we manage into our operating results for the six months ended June 30, 2001 and 2000 (dollars in thousands, unaudited):
Percentage 2001 2000 Change --------- -------- ----------- Animal hospital revenue as $137,134 $119,267 15.0% reported Less: Management fees paid to us by veterinary medical groups (18,961) (15,318) Add: Revenue of animal hospitals managed 34,999 29,268 --------- --------- Combined revenue of animal hospitals owned and managed $153,172 $133,217 15.0% ========= =========
Animal hospital revenue as reported increased $17.9 million, or 15.0%, for the six months ended June 30, 2001 compared to the six months ended June 30, 2000. The increase in animal hospital revenue as reported during this period resulted primarily from the net addition of 11 animal hospitals that we owned or managed subsequent to June 30, 2000. The increase also was due to same-facility revenue growth of 5.5% for the six months ended June 30, 2001. Same-facility revenue growth primarily was due to an increase in the average amount spent per visit and revenue generated by customers referred from our relocated animal hospitals. Page 27 OTHER REVENUE Other revenue increased $575,000 for the six months ended June 30, 2001 compared to the six months ended June 30, 2000. Our consulting agreement with Heinz Pet Products expired February 1, 2000. Under this agreement, we had received monthly consulting fees of $425,000. We entered into a new agreement with Heinz Pet Products effective October 1, 2000, which provides for monthly consulting fees of $167,000 over a term of 24 months. Consequently, for the six months ended June 30, 2001, other revenue includes consulting fees for six months as compared to one month for the period ended June 30, 2000. GROSS PROFIT The following table summarizes our gross profit and our gross profit as a percentage of applicable revenue for the six months ended June 30, 2001 and 2000 (dollars in thousands, unaudited):
2001 2000 ---------------------------------- % of % of Percentage $ Revenue $ Revenue Change -------- ------- -------- ------- ----------- Laboratory $28,028 41.0% $ 24,663 40.6% 13.6% Animal hospital 32,057 23.4% 25,680 21.5% 24.8% Other 1,000 425 -------- -------- Total gross profit $61,085 30.1% $ 50,768 28.6% 20.3% ======== ========
LABORATORY GROSS PROFIT Laboratory gross profit increased $3.4 million, or 13.6%, for the six months ended June 30, 2001 compared to the six months ended June 30, 2000. Laboratory gross profit as a percentage of laboratory revenue increased to 41.0% for the six months ended June 30, 2001 from 40.6% for the six months ended June 30, 2000. The increase in laboratory gross profit as a percentage of laboratory revenue during this period primarily was attributable to the increase in laboratory revenue combined with the operating leverage associated with the laboratory business, as a majority of the costs associated with the laboratory business are relatively fixed and the remaining costs do not increase proportionately with an increase in volume of tests. ANIMAL HOSPITAL GROSS PROFIT Animal hospital gross profit increased $6.4 million, or 24.8%, for the six months ended June 30, 2001 compared to the six months ended June 30, 2000. Animal hospital gross profit as a percentage of animal hospital revenue increased to 23.4% for the six months ended June 30, 2001 from 21.5% for the six months ended June 30, 2000. The increase in animal hospital gross profit as a percentage of animal hospital revenue during this period primarily was attributable to the increase in animal hospital revenue combined with the operating leverage associated with the animal hospital business, as most of the costs associated with this business do not increase proportionately with increases in the volume of services rendered. Page 28 SELLING, GENERAL AND ADMINISTRATIVE The following table summarizes our selling, general and administrative expense and our selling, general and administrative expense as a percentage of applicable revenue for the six months ended June 30, 2001 and 2000 (dollars in thousands, unaudited):
2001 2000 ---------------------------------- % of % of Percentage $ Revenue $ Revenue Change -------- ------- -------- ------- ----------- Laboratory $ 4,285 6.3% $ 3,984 6.6% 7.6% Animal hospital 4,557 3.3% 4,612 3.9% (1.2)% Corporate 6,973 3.4% 4,966 2.8% 40.4% -------- -------- Total selling, general and administrative $15,815 7.8% $13,562 7.6% 16.6% ======== ========
LABORATORY SELLING, GENERAL AND ADMINISTRATIVE Laboratory selling, general and administrative expense increased $301,000, or 7.6%, for the six months ended June 30, 2001 compared to the six months ended June 30, 2000. The increase primarily was due to an increase in commission payments to sales representatives, which was precipitated by an increase in sales. Laboratory selling, general and administrative expense as a percentage of laboratory revenue was 6.3% for the six months ended June 30, 2001, compared to 6.6% for the six months ended June 30, 2000. ANIMAL HOSPITAL SELLING, GENERAL AND ADMINISTRATIVE Animal hospital selling, general and administrative expense decreased $55,000, or 1.2%, for the six months ended June 30, 2001 compared to the six months ended June 30, 2000. The decrease in animal hospital selling, general and administrative expense primarily was due to a decrease in travel and related expenses. Animal hospital selling, general and administrative expense as a percentage of animal hospital revenue was 3.3% for the six months ended June 30, 2001 compared to 3.9% for the six months ended June 30, 2000. The decrease in animal hospital selling, general and administrative expense as a percentage of animal hospital revenue primarily was due to operating efficiencies associated with our infrastructure. CORPORATE SELLING, GENERAL AND ADMINISTRATIVE Corporate selling, general and administrative expense increased $2.0 million, or 40.4%, for the six months ended June 30, 2001 compared to the six months ended June 30, 2000. Corporate selling, general and administrative expense as a percentage of total revenue was 3.4% for the six months ended June 30, 2001 compared to 2.8% for the six months ended June 30, 2000. The increase in corporate selling, general and administrative expense primarily was the result of management fees of $1.2 million for the six months ended June 30, 2001 paid pursuant to our management services agreement. Excluding the management fees, corporate selling, general and administrative expense increased 15.4% for the six months ended June 30, 2001 compared to the comparable prior period and represented 2.8% of total revenue for the six months ended June 30, 2001. Page 29 EBITDA The following table summarizes our EBITDA and our EBITDA as a percentage of applicable revenue for the six months ended June 30, 2001 and 2000 (dollars in thousands, unaudited):
2001 2000 ---------------------------------- % of % of Percentage $ Revenue $ Revenue Change -------- ------- -------- ------- ----------- Laboratory $23,743 34.7% $20,679 34.1% 14.8% Animal hospital 27,500 20.1% 21,068 17.7% 30.5% Corporate (4,733) (4,541) -------- -------- Total EBITDA $46,510 22.9% $37,206 21.0% 25.0% ======== ========
DEPRECIATION AND AMORTIZATION Depreciation and amortization expense increased $4.1 million, or 47.4%, for the six months ended June 30, 2001 compared to the six months ended June 30, 2000. The increase in depreciation and amortization expense primarily was due to the amortization over a three-year period of $15.6 million paid to our executives pursuant to non-competition agreements entered into in September 2000 and the purchase of property and equipment and the acquisition of animal hospitals. OTHER NON-CASH OPERATING ITEMS Other non-cash operating items for the six months ended June 30, 2001 consisted of an $8.0 million write-down of assets and $382,000 of stock-based compensation expense. During the six months ended June 30, 2001, we closed five animal hospitals and determined that goodwill was impaired at one animal hospital. We also determined to sell three properties, the fair market values of which were less than the book values. The stock-based compensation expense resulted from the effect of the increase in the fair market value of our common stock on our stock options with variable accounting treatment during the six months ended June 30, 2001. NET INTEREST EXPENSE Net interest expense increased $17.4 million, or 369.6%, to $22.1 million for the six months ended June 30, 2001 from $4.7 million for the six months ended June 30, 2000. The increase in net interest expense primarily was due to debt we incurred in connection with our recapitalization. OTHER (INCOME) EXPENSE Other expense was $1.1 million for the six months ended June 30, 2001 and consisted of a non-cash loss on sale of assets of $870,000 and a non-cash loss on a hedging instrument of $229,000, pertaining to the changes in the time value of our collar agreement. Other income was $3.2 million for the six months ended June 30, 2000 and consisted of the gain on sale of our investment in Veterinary Pet Insurance, Inc. INCOME TAXES Provision for income taxes was $3.5 million and $11.8 million for the six months ended June 30, 2001 and 2000. The effective income tax rate for the six months ended June 30, 2001 was higher than the statutory rate primarily due to the non-deductibility for income tax purposes of the amortization of a portion of goodwill, the write-down of assets and the stock-based compensation expense. Page 30 MINORITY INTEREST Minority interest in income of our consolidated subsidiaries was $700,000 and $515,000 for the six months ended June 30, 2001 and 2000, respectively. Minority interest in income represents our partners' proportionate share of net income generated by our subsidiaries that we do not wholly own. INCREASE IN CARRYING AMOUNT OF REDEEMABLE PREFERRED STOCK The holders of our series A preferred stock and our series B preferred stock are entitled to receive dividends at a rate of 14% and 12%, respectively. We are not required to pay these dividends in cash. The dividends that are not paid in cash compound quarterly. The dividends earned in the six months ended June 30, 2001 have been added to the principal balance of the preferred stock. YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 REVENUE The following table summarizes our revenue for the years ended December 31, 2000, 1999 and 1998 (dollars in thousands):
Percentage Change 2000 1999 1998 2000 1999 ---------- ---------- ---------- -------- ------- Laboratory $ 119,300 $ 103,282 $ 89,896 15.5% 14.9% Animal hospital 240,624 217,988 191,888 10.4% 13.6% Other 925 5,100 5,100 Intercompany (6,162) (5,810) (5,845) ---------- ---------- ---------- Total revenue $ 354,687 $ 320,560 $ 281,039 10.6% 14.1% ========== ========== ==========
LABORATORY REVENUE Laboratory revenue increased $16.0 million, or 15.5%, for the year ended December 31, 2000 compared to the year ended December 31, 1999, which increased $13.4 million, or 14.9%, compared to the year ended December 31, 1998. The increase in laboratory revenue for the year ended December 31, 2000 compared to the comparable prior period primarily was due to internal growth of 13.5%. This internal laboratory revenue growth resulted primarily from an increase in the overall number of tests and requisitions and an increase in the average revenue per requisition. These increases primarily were due to the development and sale of new programs, the implementation of a price increase for most tests in February 2000 and the continued growth of our Test Express business. The increase in laboratory revenue for the year ended December 31, 1999 compared to the comparable prior period primarily was due to internal growth of 10.9%. This internal laboratory revenue growth resulted primarily from an increase in the overall number of tests due in part to the development of our Test Express business. ANIMAL HOSPITAL REVENUE The following table summarizes our animal hospital revenue as reported and the combined revenue of animal hospitals that we owned and managed had we consolidated the operating results of the animal hospitals we manage into our operating results for the years ended December 31, 2000, 1999 and 1998 (dollars in thousands): Page 31
Percentage Change 2000 1999 1998 2000 1999 ---------- ---------- ---------- -------- ------- Animal hospital revenue $ 240,624 $ 217,988 $ 191,888 10.4% 13.6% as reported Less: Management fees paid to us by veterinary medical groups (31,133) (30,202) (19,325) Add: Revenue of animal hospitals managed 60,380 42,829 24,914 ---------- ---------- ---------- Combined revenue of animal hospitals owned and managed $ 269,871 $ 230,615 $ 197,477 17.0% 16.8% ========== ========== ==========
Animal hospital revenue increased $22.6 million, or 10.4%, for the year ended December 31, 2000 compared to the year ended December 31, 1999, which increased $26.1 million, or 13.6%, compared to the year ended December 31, 1998. The increase in animal hospital revenue for the year ended December 31, 2000 as compared to the comparable prior period resulted primarily from the net addition of 15 animal hospitals that we owned or managed subsequent to December 31, 1999. Similarly, the increase for the year ended December 31, 1999 as compared to the comparable prior period resulted primarily from the net addition of 26 animal hospitals that we owned or managed subsequent to December 31, 1998. The increase in animal hospital revenue for the year ended December 31, 2000 also was due to same-facility revenue growth of 7.0%, and the increase in animal hospital revenue for the year ended December 31, 1999 also was due to same-facility revenue growth of 2.6%. Same-facility revenue growth in both years primarily was due to increases in the average amount spent per visit and revenue generated by customers referred from our relocated animal hospitals. OTHER REVENUE Other revenue decreased $4.2 million for the year ended December 31, 2000 compared to each of the years ended December 31, 1999 and 1998. Our consulting agreement with Heinz Pet Products expired February 1, 2000. Under this agreement we had received monthly consulting fees of $425,000. We entered into a new agreement with Heinz Pet Products effective October 1, 2000 which provides for monthly consulting fees of $167,000 over a term of 24 months. Consequently, for the year ended December 31, 2000, other revenue includes consulting fees for an aggregate of four months as compared to the entire periods in each of the years ended December 31, 1999 and 1998. GROSS PROFIT The following table summarizes our gross profit and our gross profit as a percentage of applicable revenue for the years ended December 31, 2000, 1999 and 1998 (dollars in thousands):
2000 1999 1998 Percentage Change ----------------------------------------------------- ----------------- % of % of % of $ Revenue $ Revenue $ Revenue 2000 1999 ------- ------- ------- ------- ------- ------- -------- ------- Laboratory $46,741 39.2% $39,048 37.8% $29,690 33.0% 19.7% 31.5% Animal hospital 52,234 21.7% 43,919 20.1% 36,869 19.2% 18.9% 19.1% Other 925 5,100 5,100 ------- ------- ------- Total gross profit $99,900 28.2% $88,067 27.5% $71,659 25.5% 13.4% 22.9% ======= ======= ======= ======= ======= ======= ======= ======
LABORATORY GROSS PROFIT Laboratory gross profit increased $7.7 million, or 19.7%, for the year ended December 31, 2000 compared to the year ended December 31, 1999, which increased $9.4 million, or 31.5%, compared to the year ended December 31, 1998. Laboratory gross profit as a percentage of laboratory revenue increased to 39.2% for the year ended December 31, 2000 from 37.8% for the year ended December 31, 1999, which increased from 33.0% for the year ended December 31, 1998. The increases in laboratory gross profit as a percentage of laboratory revenue during these periods primarily were attributable to Page 32 increases in laboratory revenue combined with operating leverage associated with our laboratory business. ANIMAL HOSPITAL GROSS PROFIT Animal hospital gross profit increased $8.3 million, or 18.9%, for the year ended December 31, 2000 compared to the year ended December 31, 1999, which increased $7.1 million, or 19.1%, compared to the year ended December 31, 1998. Animal hospital gross profit as a percentage of animal hospital revenue increased to 21.7% for the year ended December 31, 2000 from 20.1% for the year ended December 31, 1999, which increased from 19.2% for the year ended December 31, 1998. The increases in animal hospital gross profit as a percentage of animal hospital revenue during these periods primarily were due to changes in the management arrangements under our agreements with the hospitals we managed. Our aggregate animal hospital gross profit does not change relative to the mix of animal hospitals we own and manage. If the proportion of animal hospitals we manage increases relative to the animal hospitals we own, we would expect our animal hospital gross profit as a percentage of animal hospital revenue to increase. SELLING, GENERAL AND ADMINISTRATIVE The following table summarizes our selling, general and our administrative expense and expense as a percentage of applicable revenue for the years ended December 31, 2000, 1999 and 1998 (dollars in thousands):
2000 1999 1998 Percentage Change ----------------------------------------------------- ----------------- % of % of % of $ Revenue $ Revenue $ Revenue 2000 1999 ------- ------- ------- ------- ------- ------- -------- ------- Laboratory $ 7,914 6.6% $ 6,775 6.6% $ 5,475 6.1% 16.8% 23.7% Animal hospital 9,249 3.8% 6,682 3.1% 4,894 2.6% 38.4% 36.5% Corporate 9,831 2.8% 10,165 3.2% 9,324 3.3% (3.3)% 9.0% --------- -------- -------- Total selling, general and administrative $ 26,994 7.6% $23,622 7.4% $19,693 7.0% 14.3% 20.0% ========= ======== ========
LABORATORY SELLING, GENERAL AND ADMINISTRATIVE Laboratory selling, general and administrative expense for the year ended December 31, 2000 increased $1.1 million, or 16.8%, compared to the year ended December 31, 1999, which increased $1.3 million, or 23.7%, compared to the year ended December 31, 1998. The increase in laboratory selling, general and administrative expense for the year ended December 31, 2000 compared to the comparable prior period primarily was due to an increase in commission payments to sales representatives, which was precipitated by an increase in sales, and salaries attributable to new sales representatives. The increase in laboratory selling, general and administrative expense for the year ended December 31, 1999 compared to the comparable prior period primarily was due to centralizing certain administrative functions that previously were handled by and charged as a direct cost to the individual laboratories. ANIMAL HOSPITAL SELLING, GENERAL AND ADMINISTRATIVE Animal hospital selling, general and administrative expense for the year ended December 31, 2000 increased $2.6 million, or 38.4%, compared to the year ended December 31, 1999, which increased $1.8 million, or 36.5%, compared to the year ended December 31, 1998. The increases in animal hospital selling, general and administrative expense for the years ended December 31, 2000 and 1999 primarily were attributable to salaries associated with new personnel hired in connection with the expansion of our management and administrative infrastructure to support the additional number of animal hospitals we owned and managed. The increases in animal hospital selling, general and administrative expense as a percentage of animal hospital revenue in the years ended December 31, Page 33 2000 and 1999 primarily were due to increases in the expense associated with our management and administrative infrastructure without a proportionate increase in animal hospital revenue. CORPORATE SELLING, GENERAL AND ADMINISTRATIVE Corporate selling, general and administrative expense for the year ended December 31, 2000 decreased $334,000, or 3.3%, compared to the year ended December 31, 1999, which increased $841,000, or 9.0%, compared to the year ended December 31, 1998. The decrease in corporate selling, general and administrative expense for the year ended December 31, 2000 compared to the comparable prior period primarily due to efficiencies realized in our information systems, accounting and finance departments that resulted from our systems upgrade. The increase in corporate selling, general and administrative expense for the year ended December 31, 1999 compared to the comparable prior period primarily was due to the expansion of our information systems and accounting departments. EBITDA The following table summarizes our EBITDA and our EBITDA as a percentage of applicable revenue for the years ended December 31, 2000, 1999 and 1998 (dollars in thousands):
2000 1999 1998 Percentage Change ----------------------------------------------------- ----------------- % of % of % of $ Revenue $ Revenue $ Revenue 2000 1999 ------- ------- ------- ------- ------- ------- -------- ------- Laboratory $38,827 32.5% $32,273 31.2% $24,215 26.9% 20.3% 33.3% Animal hospital 42,985 17.9% 37,237 17.1% 31,975 16.7% 15.4% 16.5% Corporate (8,286) (5,065) (4,224) -------- -------- -------- EBITDA $73,526 20.7% $64,445 20.1% $51,966 18.5% 14.1% 24.0% ======== ======== ========
DEPRECIATION AND AMORTIZATION Depreciation and amortization expense increased $2.4 million, or 14.7%, for the year ended December 31, 2000 compared to the year ended December 31, 1999, which increased $3.3 million, or 25.4%, compared to the year ended December 31, 1998. The increases in depreciation and amortization expense primarily were due to the amortization over a three-year period of $15.6 million paid to our executives pursuant to non-competition agreements entered into in September 2000, the purchase of property and equipment and the acquisition of animal hospitals and diagnostic laboratories. RECAPITALIZATION COSTS We incurred $34.8 million of recapitalization costs for the year ended December 31, 2000 pertaining to our recapitalization in September 2000. These costs consisted of $24.1 million associated with the buy-out of stock options held by employees, $1.2 million paid to our employees for services rendered in connection with our recapitalization, $7.6 million of professional fees and $1.9 million of other expenses. OTHER NON-CASH OPERATING ITEMS Other non-cash operating items for the year ended December 31, 1999 consisted of a $1.9 million reversal of restructuring charges pertaining to our 1996 and 1997 restructuring plans. NET INTEREST EXPENSE Net interest expense increased $10.4 million, or 110.5% to $19.9 million for the year ended December 31, 2000 from $9.4 million for the year ended December 31, 1999, which represented an Page 34 increase of $617,000, or 7.0%, from $8.8 million for the year ended December 31, 1998. The increase in net interest expense in 2000 primarily was due to debt we incurred in connection with the recapitalization. OTHER (INCOME) EXPENSE Other (income) expense was $1.8 million for the year ended December 31, 2000, consisting of a $3.2 million gain on sale of our investment in Veterinary Pet Insurance, Inc. and a $5.0 million loss resulting from the write-down of our investment in Zoasis.com, Inc. INCOME TAXES Provision for income taxes was $2.2 million, $14.4 million and $13.0 million for the years ended December 31, 2000, 1999 and 1998. Our effective income tax rate for each year was higher than the statutory rate primarily due to the non-deductibility for income tax purposes of the amortization of a portion of goodwill. In 2000, our effective income tax rate also was impacted by the change in valuation allowance associated with our recapitalization and our write-down of the Zoasis investment. As a result of a favorable change in the U.S. tax regulations with respect to limitations on the use of net operating loss carryforwards, we recorded a deferred tax benefit of $2.1 million in 1999. MINORITY INTEREST Minority interest in income of the consolidated subsidiaries was $1.1 million, $850,000 and $780,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Minority interest in income represents our partners' proportionate share of net income generated by our subsidiaries that we do not wholly own. INCREASE IN CARRYING AMOUNT OF REDEEMABLE PREFERRED STOCK The holders of our series A preferred stock and our series B preferred stock are entitled to receive dividends at a rate of 14% and 12%, respectively. We are not required to pay these dividends in cash. The dividends that are not paid in cash compound quarterly. The dividends earned from September 20, 2000 through December 31, 2000 were added to the principal balance of the preferred stock. QUARTERLY RESULTS The following tables set forth selected unaudited quarterly results for the ten quarters commencing January 1, 1999 and ending June 30, 2001. The quarterly financial data as of each period presented below have been derived from our unaudited consolidated financial statements for those periods. Results for these periods are not necessarily indicative of results for the full year. The quarterly financial data should be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes included elsewhere in this prospectus.
2001 Quarter Ended, 2000 Quarter Ended, 1999 Quarter Ended, ------------------- ----------------------------------------- ----------------------------------------- June 30 March 31 Dec. 31 Sept. 30 June 30 March 31 Dec. 31 Sept. 30 June 30 March 31 -------- --------- -------- --------- --------- --------- --------- --------- -------- --------- (dollars in thousands, except per share amounts, unaudited) Revenue: Laboratory $ 35,707 $ 32,677 $ 28,469 $ 30,105 $ 31,921 $ 28,805 $ 24,846 $ 25,591 $ 27,276 $ 25,569 Animal hospital 72,780 64,354 57,908 63,449 63,472 55,795 52,228 58,150 59,159 48,451 Other 500 500 500 -- -- 425 1,275 1,275 1,275 1,275 Intercompany (1,938) (1,851) (1,471) (1,558) (1,459) (1,674) (1,381) (1,426) (1,546) (1,457) -------- --------- -------- --------- --------- --------- --------- --------- -------- --------- Total revenue 107,049 95,680 85,406 91,996 93,934 83,351 76,968 83,590 86,164 73,838 Gross profit 34,302 26,783 21,895 27,237 28,566 22,202 19,854 23,584 25,704 18,925 EBITDA 27,186 19,324 15,986 20,334 21,980 15,226 13,794 17,663 19,949 13,039 Operating income (loss) 11,782 12,450 9,765 (19,159) 17,524 11,075 10,512 12,414 14,915 9,175 Net income (loss) (3,158) 55 944 (24,183) 8,436 6,392 4,305 7,462 6,890 3,700 Diluted EPS $ (0.48) $ (0.28) $ (0.22) $ (0.09) $ 0.02 $ 0.02 $ 0.01 $ 0.02 $ 0.02 0.01
Page 35
2001 Quarter Ended, 2000 Quarter Ended, 1999 Quarter Ended, ------------------- ----------------------------------------- ----------------------------------------- June 30 March 31 Dec. 31 Sept. 30 June 30 March 31 Dec. 31 Sept. 30 June 30 March 31 -------- --------- -------- --------- --------- --------- --------- --------- -------- --------- (dollars in thousands, except per share amounts, unaudited) Revenue: Laboratory 33.3% 34.1% 33.3% 32.7% 34.0% 34.6% 32.2% 30.6% 31.6% 34.7% Animal hospital 68.0% 67.3% 67.8% 69.0% 67.6% 66.9% 67.9% 69.6% 68.7% 65.6% Other 0.5% 0.5% 0.6% -- -- 0.5% 1.7% 1.5% 1.5% 1.7% Intercompany (1.8)% (1.9)% (1.7)% (1.7)% (1.6)% (2.0)% (1.8)% (1.7)% (1.8)% (2.0)% -------- --------- -------- --------- --------- --------- --------- --------- -------- --------- Total revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Gross profit 32.0% 28.0% 25.6% 29.6% 30.4% 26.6% 25.8% 28.2% 29.8% 25.6% EBITDA 25.4% 20.2% 18.7% 22.1% 23.4% 18.3% 17.9% 21.1% 23.2% 17.7% Operating income (loss) 11.0% 13.0% 11.4% (20.8)% 18.7% 13.3% 13.7% 14.9% 17.3% 12.4% Net income (loss) 3.0% 0.1% 1.1% (26.3)% 9.0% 7.7% 5.6% 8.9% 8.0% 5.0%
Although not readily detectable because of the impact of acquisitions, our operations are subject to seasonal fluctuation. In particular, our revenue historically has been greater in the second and third quarters than in the first and fourth quarters. The demand for our veterinary services are significantly higher during warmer months because pets spend a greater amount of time outdoors, where they are more likely to be injured and are more susceptible to disease and parasites. In addition, use of veterinary services may be affected by levels of infestation of fleas, heartworms and ticks and the number of daylight hours. A substantial portion of our costs are fixed and do not vary with the level of demand. Consequently, our EBITDA and EBITDA margin for the second and third quarters generally have been higher than that experienced in the first and fourth quarters. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operations for the six months ended June 30, 2001 and 2000 was $32.6 million and $26.4 million, and for the years ended December 31, 2000, 1999 and 1998 was $60.1 million, $38.5 million and $27.1 million. The increases are primarily attributable to increases in revenue and operating margins. Net cash used by investing activities for the six months ended June 30, 2001 was $20.1 million, and for the years ended December 31, 2000, 1999 and 1998 was $47.7 million, $13.7 million and $19.5 million. In the six months ended June 30, 2001, and in the years ended December 31, 2000, 1999 and 1998, we used cash of $7.0 million, $22.6 million, $21.8 million and $11.7 million for property and equipment additions. In these same periods, we used $13.5 million to acquire 13 animal hospitals, $18.2 million to acquire 24 animal hospitals and one laboratory, $16.1 million to acquire 39 animal hospitals and two laboratories and $17.1 million to acquire 11 animal hospitals and one laboratory. In the six months ended June 30, 2001, we did not purchase any properties in connection with our acquisitions and in the years ended December 31, 2000, 1999 and 1998, we used $1.8 million, $4.2 million and $4.3 million to purchase real estate in connection with our acquisitions. In connection with the recapitalization transaction, we received $149.2 million from the issuance of preferred stock, $14.4 million from the issuance of common stock, $1.1 million from the issuance of stock warrants and $356.7 million from the issuance of long-term debt. These proceeds were primarily used to repay long-term obligations in the amount of $172.9 million, to repurchase common stock in the amount of $314.5 million and to make non-competition payments to certain members of management in the aggregate amount of $15.6 million. For the year ended December 31, 1999 and 1998, cash used in financing activities was $23.1 million and $18.6 million in each year primarily for repayment of long term debt. At June 30, 2001, we had cash and cash equivalents of $19.2 million and indebtedness of $368.1 million. The aggregate maturities of principal of our debt obligations for 2001 is $5.8 million. We intend to continue our growth through the selective acquisition of animal hospitals primarily for cash. We anticipate acquiring additional animal hospitals in 2001. As of June 30, 2001, under our Page 36 credit facility, we may spend $11.0 million for additional acquisitions in 2001. In the second half of 2001, we will pay approximately $822,000 related to acquisition costs on completed acquisitions and we expect to spend approximately $12.0 million for additions to property and equipment. We continue to examine acquisition opportunities in the laboratory field, which may impose additional cash requirements. We believe we will be able to fund our future cash requirements for operations primarily from operating cash flows, cash on hand and, if needed, borrowings under the $50.0 million revolving credit facility, which we have not yet utilized as of June 30, 2001. We believe these sources of funds will be sufficient to continue our operations and planned capital expenditures and satisfy our scheduled principal and interest payments under debt and capital lease obligations for at least the next 12 months. However, a significant portion of our cash requirements will be determined by the pace and size of our acquisitions. NEW ACCOUNTING PRONOUNCEMENTS DERIVATIVES Effective January 1, 2001, we adopted Statement of Financial Accounting Standards, or SFAS, No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value with offsets to other comprehensive income or earnings, depending on the type of derivative and/or the underlying cause for the change in fair value. OUR COLLAR AGREEMENT On November 13, 2000, we entered into a no-fee interest rate collar agreement with Wells Fargo Bank, N.A. effective November 15, 2000 and expiring November 15, 2002. Our collar agreement is based on LIBOR, pays out monthly, resets monthly and has a cap and floor notional amount of $62.5 million, with a cap rate of 7.5% and floor rate of 5.9%. Under SFAS 133, the actual cash paid by us as a result of LIBOR rates being below the floor of our collar agreement are recorded as a component of earnings. As of June 30, 2001, we have paid $253,000 because of LIBOR rates being below the floor of 5.9%. These payments were all made for the six months ended June 30, 2001 and are included in interest expense. Our collar agreement is considered a cash flow hedge. Because LIBOR rates at June 30, 2001 were below the floor rate in the collar agreement of 5.9% and are projected to remain below the floor rate through the term of the collar agreement, the fair value of our collar agreement is a net liability to us of $1.4 million at June 30, 2001. It is recorded in our balance sheet as part of other accrued liabilities. GOODWILL AND OTHER INTANGIBLE ASSETS In July 2001, the Financial Accounting Standards Board, or FASB, issued SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, which changes the way companies account for intangible assets and goodwill associated with business combinations. The principal changes of SFAS 142 are as follows: Page 37 o All goodwill amortization will cease effective January 1, 2002. For the six months ended June 30, 2001, we recorded $4.5 million of goodwill amortization. o All of the goodwill on our balance sheet at June 30, 2001 will continue to be amortized through the remaining months of 2001, in accordance with their current amortization schedules. o All goodwill acquired in acquisitions after June 30, 2001 will not be subject to amortization in 2001 or in the future. o All goodwill will be reviewed annually, or as circumstances warrant, using the fair-value-based goodwill impairment tests discussed in SFAS 142. As of June 30, 2001, our goodwill balance was $311.8 million. Any impairment recognized associated with the adoption of SFAS 142 will be accounted for as a cumulative effect of change in accounting principle. We have not yet determined what the impact of SFAS 142 will be on our financial statements. In July, 2001, the FASB issued SFAS 141, BUSINESS COMBINATIONS, which requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method of accounting. We do not expect the adoption of SFAS 141 to have a material impact on our financial statements or our operations. RESTRUCTURING AND ASSET WRITE-DOWN During 1996, we adopted and implemented a restructuring plan and recorded a restructuring charge of $5.7 million and an asset write-down charge of $9.5 million. The major components of the 1996 restructuring plan included: o the termination of leases, the write-down of intangibles, property and equipment, and employee terminations in connection with the closure, sale or consolidation of 12 animal hospitals; o the termination of contracts and leases, the write-down of certain property and equipment, and the termination of employees in connection with the restructuring of our laboratory operations; and o contract terminations and write-down of assets in connection with the migration to common communications and computer systems. Collectively, the 12 hospitals had aggregate revenue of $6.8 million and net operating loss of $350,000 for the year ended December 31, 1996. The restructuring of our laboratory operations consisted primarily of: o plans to relocate our facility in Indiana to Chicago; o the downsizing of our Arizona laboratory operations; o the standardization of laboratory and testing methods throughout all of our laboratories, resulting in the write-down of equipment that will no longer be utilized; and o the shutdown of a laboratory facility in the Midwest. During 1999, pursuant to the 1996 restructuring plan, we incurred the following: o Cash expenditures of $345,000 for lease and other contractual obligations. Page 38 o Non-cash asset write-downs of $157,000, primarily pertaining to hospitals previously closed and our shutdown of certain computer systems. o We recognized a $321,000 favorable settlement related to a laboratory operations' contract that was terminated as part of the 1996 restructuring plan. o During the fourth quarter of 1999, we were released from our contractual obligation pertaining to certain facility leases for hospitals that were sold in 1997. In addition, we reached a favorable settlement on contractual obligations pertaining to our migration to common communications and computer systems, a component of the 1996 restructuring plan. As a result of these two favorable outcomes, we reversed $889,000 of restructuring charges. During 1998, we took the following actions pursuant to the 1996 restructuring plan: o We closed one animal hospital. o We shut down certain computer hardware and software, as part of our migration to common computer systems. o We decided that two hospitals would continue to be operated instead of closed as was originally outlined in the 1996 restructuring plan. The hospitals' local markets improved since the 1996 restructuring plan was determined, causing our management to revise its plan. o We terminated our attempt to sell one hospital because it has been unable to negotiate a fair sales price based on the hospital's operating results. Reserves of $593,000 related to the three hospitals we ultimately retained, were utilized to offset increases in the expected cost to extinguish lease commitments and contract obligations that were part of the 1996 restructuring plan. As of December 31, 1999, all phases of the 1996 restructuring plan were complete and no restructuring reserves remained on our balance sheet. During 1997, we reviewed the financial performance of our hospitals. As a result of this review, an additional 12 hospitals were determined not to meet our performance standards. Accordingly, we adopted phase two of our restructuring plan resulting in restructuring and asset write-down charges of $2.1 million. The major components of the 1997 restructuring plan consisted of the termination of leases, amounting to $1.2 million, and the write-down of intangibles, property and equipment, amounting to $876,000, in connection with the closure or sale of 12 animal hospitals. Collectively, the 12 hospitals had aggregate revenue of $5.4 million and net operating income of $176,000 for the year ended December 31, 1997. For the six months ended June 30, 2001 and the year ended December 31, 2000, we incurred $34,000 and $190,000, of expenditures for lease and other contractual obligations resulting from the 1997 restructuring plan. During 1999, the actions taken pursuant to the 1997 restructuring plan were as follows: o We sold one hospital resulting in cash expenditures of $2,000 and non-cash asset write-downs of $64,000. o We closed three hospitals resulting in cash expenditures of $4,000 and non-cash asset write-downs of $53,000. o We incurred cash expenditures of $71,000 for lease and other contractual obligations. Page 39 o We recorded an additional $28,000 non-cash asset write-down pertaining to a hospital previously closed. o During the fourth quarter of 1999, we reached favorable settlements from the sale and/or closure of the hospitals noted in the first two bullet points above. As a result we reversed $663,000 of restructuring charges. During 1998, we closed three animal hospitals pursuant to the 1997 restructuring plan, resulting in the write-off of $299,000 of property and equipment and cash expenditures of $81,000 for lease obligations and closing costs. Also during 1998, we determined that five of the animal hospitals that were to be sold as part of the 1997 restructuring plan would be kept due to their improved performance. At June 30, 2001 and December 31, 2000, $118,000 and $152,000, respectively, of the restructuring reserves from the 1997 restructuring plan remain on our balance sheet, consisting primarily of lease and other contractual obligations. All significant phases of the 1997 restructuring plan were complete as of December 31, 1999, although certain lease obligations will continue through 2005. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our market risk exposure is confined to interest rate exposure of our debt obligations that bear interest based on floating rates. Our revolving line of credit and certain other debt obligations are subject to variable rate interest which could be adversely affected by an increase in interest rates. As of June 30, 2001, we had borrowings of $247.4 million under a $300.0 million credit facility. Interest on amounts borrowed under the credit facility is subject to adjustment based on certain levels of financial performance. For LIBOR borrowings, the applicable margin added to LIBOR can range from 2.00% to 3.25% for Term A and revolving loans. For every one-half percent rise in interest rates on our variable rate obligations held at June 30, 2001, interest expense would increase by approximately $1.2 million for the twelve months ended June 30, 2002. We will repay a portion of our existing indebtedness with the proceeds from this offering. We invest our cash in money market securities, which are subject to minimal credit and market risk. In addition, our operations are solely in the United States and accordingly we do not have any exposure to foreign currency rate fluctuations. INFLATION Historically, our operations have not been materially affected by inflation. We cannot assure you that our operations will not be affected by inflation in the future. Page 40 BUSINESS GENERAL We are a leading animal health care services company and operate the largest networks of veterinary diagnostic laboratories and free-standing, full-service animal hospitals in the United States. Our network of veterinarian diagnostic laboratories provides sophisticated testing and consulting services to the veterinarian comparable to that provided by the human diagnostic laboratory to the physician. Veterinarians use these services in the detection, diagnosis, evaluation, monitoring, treatment and prevention of diseases and other conditions affecting animals. With the only nationwide veterinary laboratory network serving all 50 states, we provide diagnostic testing for an estimated 15,000 animal hospitals, a customer base over twice the size of our next largest competitor. Our network of animal hospitals offers a full range of general medical and surgical services for companion animals, as well as specialized treatments including advanced diagnostic services, internal medicine, oncology, ophthalmology, dermatology and cardiology. In addition, we provide pharmaceutical products and perform a variety of pet wellness programs including routine vaccinations, health examinations, diagnostic testing, spaying, neutering and dental care. The more than 750 veterinarians supporting our 211 animal hospitals had over 3 million patient visits in 2000. INDUSTRY OVERVIEW The U.S. population of companion animals has reached approximately 188 million, including about 141 million dogs and cats. The most recent industry data show that over $11 billion was spent on animal health care services in 1996, with an annual growth rate of over 9.5% from 1991 through 1996 for spending on dogs and cats. The ownership of pets is widespread, with over 62% of U.S. households owning at least one pet, including companion and other animals. Pet ownership is highest among households with children under 18 and empty nesters whose pets have become their new "children." Based on U.S. Census Bureau data, the number of family households with children under 18 will continue to grow over the next five years. Census data also indicate that the number of childless households will increase through 2010. These favorable demographic trends should combine to drive growth in both pet-owning households and the pet population. Among this expanding number of pet owners is a growing awareness of pet health and wellness, including the benefits of preventive care and specialized services. As technology continues to migrate from the human healthcare sector into the practice of veterinary medicine, more sophisticated treatments and diagnostic tests are becoming available to treat companion animals. These new and increasingly complex procedures, diagnostic tests and pharmaceuticals are gaining wider acceptance as pet owners are exposed to these previously unconsidered treatment programs through literature and marketing programs sponsored by large pharmaceutical and pet nutrition companies. We believe this is evidenced by an industry survey revealing that 70% of pet owners view their animals as important members of the family and are willing to pay for more veterinary services to promote the good health and extend the life of their pet. Even as treatments available in veterinary medicine become more complex, prices for veterinary services typically remain a low percentage of a pet-owner's income, facilitating payment at the time of service. Unlike the human health care industry, providers of veterinary services are not dependent on third-party payors in order to collect fees. As a consequence, providers of veterinary services do not have the problems of extended payment collection cycles or pricing pressures from third party-payors faced by human health care providers. Outsourced laboratory testing is a wholesale business that collects payments directly from animal hospitals, generally on terms requiring payment within 30 days of the date the charge is invoiced. Fees for animal hospital services are due at the time of the service. For example, over 95% of our animal hospital services are paid for in cash or by credit card at that time. In addition, over the past three fiscal years, our bad debt expense has averaged about 1% of total revenue. Page 41 DIAGNOSTIC LABORATORIES. Laboratory tests are used by veterinarians to diagnose, monitor and treat illnesses and conditions in animals through the detection of substances in urine, tissue, fecal and blood samples and other specimens. As is the case with the physician treating a human patient, laboratory diagnostic testing is becoming a routine diagnostic tool used by the veterinarian. Veterinary laboratory tests are performed primarily at free-standing veterinary diagnostic laboratories, universities or animal hospitals using on-site diagnostic equipment. For particular types of tests, on-site diagnostic equipment can provide more timely results than outside laboratories, but this in-house testing requires the animal hospital or veterinarian to purchase the equipment, maintain and calibrate the equipment periodically to avoid testing errors, and employ trained personnel to operate it. Conversely, veterinary diagnostic laboratories can provide a wider range of tests than generally are available on-site at most animal hospitals and do not require any up-front investment on the part of the animal hospital or veterinarian. Also, leading veterinary diagnostic laboratories employ highly trained individuals who specialize in the detection and diagnosis of diseases and thus are a valuable resource for the veterinarian. Within the outsourcing market, we believe that veterinarians prefer to use laboratories that specialize in the veterinary market and that offer a broad spectrum of standard and customized tests, convenient sample pick-up times, rapid test reporting and access to professional consulting services provided by trained specialists. Providing the customer with this level of service at competitive prices requires high throughput volumes due to the operating leverage associated with the laboratory business. As a result, larger laboratories likely maintain a competitive advantage relative to smaller laboratories. We believe that the outsourced laboratory testing market is one of the fastest growing segments of the animal health care services industry, and expect continued growth as a result of: o the increased focus on wellness and monitoring programs in veterinary medicine, which is increasing the overall number of tests being performed; o the emphasis in veterinary education on diagnostic tests and the trend toward specialization in veterinary medicine, which are causing veterinarians to increasingly rely on tests for more accurate diagnoses; o continued technological developments in veterinary medicine, which are increasing the breadth of tests offered; and o the trend toward outsourcing tests because of the relative low cost, the high accuracy rates and the diagnostic support provided by specialists employed by the laboratory. ANIMAL HOSPITALS. Animal health care services are provided predominately by the veterinarian practicing as a sole practitioner, or as part of a larger animal medical group or hospital. Veterinarians diagnose and treat animal illnesses and injuries, perform surgeries, provide routine medical exams and prescribe medication. Some veterinarians specialize by type of medicine, such as orthopedics, dentistry, ophthalmology or dermatology. Others focus on a particular type of animal. The principal factors in a pet owner's decision as to which veterinarian to use include convenient location, recommendation of friends, reasonable fees, convenient hours and quality of care. The U.S. market for veterinary services is highly fragmented, with more than 35,000 veterinarians practicing at over 19,000 companion animal hospitals. Although most animal hospitals are single site, sole practitioner facilities, we believe veterinarians are increasingly gravitating toward animal hospitals that provide state-of-the-art facilities, treatments, methods and pharmaceuticals to enhance the services they can provide their clients. Page 42 Well capitalized animal hospital operators have the opportunity to supplement their internal growth with selective acquisitions. We believe the extremely fragmented animal hospital industry is consolidating due to: o the purchasing, marketing and administrative cost advantages that can be realized by a large, multiple location, multi-practitioner veterinary provider; o the cost of financing equipment purchases and upgrading technology necessary for a successful practice; o the desire of veterinarians to focus on practicing veterinary medicine, rather than spending large portions of their time at work on performing the administrative tasks necessary to operate an animal hospital; o the choice of some owners of animal hospitals to diversify their investment portfolio by selling all or a portion of their investment in the animal hospital; and o the appeal to many veterinarians of the benefits and work scheduling flexibility that are not typically available to a sole practitioner or single site provider. COMPETITIVE STRENGTHS We believe that we are well-positioned for profitable growth due to the following competitive strengths: o MARKET LEADER. We are the market leader in each of the business segments in which we operate. We maintain the only veterinary diagnostic laboratory network serving all 50 states, which is supported by the largest group of consulting veterinary specialists in the industry. Our network of animal hospitals and veterinarians is the largest in the United States. We believe that it would be difficult, time consuming and expensive for new entrants or existing competitors to assemble a comparable nationwide laboratory or animal hospital network. It would be particularly difficult to replicate our team of specialists, transportation network, management and systems infrastructure, size of our veterinarian group and our customer relationships. o COMPELLING BUSINESS MODEL. We believe our business model enables us to generate consistent growth and increasing cash flows. The fixed cost nature of our business allows us to generate strong margins, particularly on incremental revenues. In each quarter since 1998, we have generated positive laboratory internal revenue growth. The growth in our laboratory revenue, combined with greater utilization of our infrastructure, has enabled us to improve our laboratory EBITDA margin from 26.9% in 1998 to 33.0% for the twelve months ended June 30, 2001. In each quarter since 1998, we have generated positive animal hospital same-facility revenue growth. Due to the operating leverage associated with our animal hospital business, the increase in animal hospital revenue has enabled us to improve our animal hospital EBITDA margin from 16.7% in 1998 to 19.1% for the twelve months ended June 30, 2001. These high margins, combined with our modest working capital needs and low maintenance capital expenditures, provide cash that we can use for acquisitions or to reduce indebtedness. o LEADING TEAM OF SPECIALISTS. We believe our laboratories are a valuable diagnostic resource for veterinarians. Due to the trend towards offering specialized services in veterinary medicine, our network of 85 specialists, which includes veterinarians, chemists and other scientists with expertise in fields such as pathology, internal medicine, oncology, cardiology, dermatology, neurology and endocrinology, provides us with a significant competitive advantage. These specialists are available to consult with our laboratory Page 43 customers, providing a compelling reason for them to use our laboratories rather than those of our competitors, most of whom offer no comparable service. Our team of specialists represents the largest interactive source for readily available diagnostic advice in the veterinary industry and interact with animal health care professionals over 90,000 times a year. o HIGH QUALITY SERVICE PROVIDER. We believe that we have built a reputation as a trusted animal health brand among veterinarians and pet owners alike. In our laboratories, we maintain rigorous quality assurance programs to ensure the accuracy of reported results. We calibrate our laboratory equipment several times daily, test specimens of known concentration or reactivity to assure accuracy and use only qualified personnel to perform testing. Further, our specialists review all test results outside of the range of established norms. As a result of these measures, we believe our diagnostic accuracy rate is over 99%. In our animal hospitals, we provide continuing education programs, promote the sharing of professional knowledge and expertise and have developed and implemented a program of best practices to promote quality medical care. o SHARED EXPERTISE AMONG VETERINARIANS. We believe our group of animal hospitals and veterinarians provide us with a competitive advantage through our collective expertise and experience. Our veterinarians consult with other veterinarians in our network to share information regarding the practice of veterinary medicine, which continues to expand our collective knowledge. We maintain an internal continuing education program for our veterinarians and have an established infrastructure for the dissemination of information on new developments in diagnostic testing, procedures and treatment programs. We believe the accumulation of veterinary medical knowledge and experience among our veterinarian group enables us to offer new services more rapidly than our competitors, offer our services at a higher level of quality and remain the leading source of veterinary information for interested companies such as pharmaceutical and pet food companies. BUSINESS STRATEGY Our business strategy is to continue to expand our market leadership in animal health care services through our diagnostic laboratories and animal hospitals. Key elements of our strategy include: o CAPITALIZING ON OUR LEADING MARKET POSITION TO GENERATE REVENUE GROWTH. Our leading market position in each of our business segments positions us to capitalize on favorable growth trends in the animal health care services industry. In our laboratories, we seek to generate revenue growth by taking advantage of the growing number of outsourced diagnostic tests and by increasing our market share. We continually educate veterinarians on new and existing technologies and test offerings available to diagnose medical conditions. Further, we leverage the knowledge of our specialists by providing veterinarians with extensive customer support in promoting and understanding these diagnostic tests. In our animal hospitals, we seek to generate revenue growth by capitalizing on the growing emphasis on pet health and wellness. For example, in 2000, we implemented a senior wellness program. This program bundles tests and animal hospital services, seeking to promote recurring visits and to increase the average amount spent per visit. o LEVERAGING ESTABLISHED INFRASTRUCTURE TO IMPROVE MARGINS. We intend to leverage our established laboratory and animal hospital infrastructure to continue to increase our operating margins. Due to our established networks and the fixed cost nature of our business model, we are able to realize high margins on incremental revenues from both laboratory and animal hospital customers. For example, given that our nationwide transportation network servicing our laboratory customers is a relatively fixed cost, we are able to achieve significantly higher margins on most incremental tests ordered by the same customer when picked up by our couriers at the same time. We estimate that in most cases, we realize a gross margin between 60% and 75% on these incremental tests. Page 44 o UTILIZING ENTERPRISE - WIDE SYSTEMS TO IMPROVE OPERATING EFFICIENCIES. We recently completed the migration of all animal hospital operations to an enterprise-wide management information system. We believe that this common system will enable us to more effectively manage the key operating metrics that drive our business. With the aid of this system, we seek to standardize pricing, expand the services our veterinarians provide, capture unbilled service, increase volume and implement targeted marketing programs. o PURSUE SELECTED ACQUISITIONS. Although we have substantially completed our laboratory infrastructure, we may make selective, strategic laboratory acquisitions. Additionally, the fragmentation of the animal hospital industry provides us with significant expansion opportunities in our animal hospital segment. Depending on the attractiveness of the candidates and the strategic fit with our existing operations, we intend to acquire approximately 15 to 25 animals hospitals per year primarily using internally generated cash. DIAGNOSTIC LABORATORIES We operate the only full-service, veterinary diagnostic laboratory network serving all 50 states. We have a client base over two times that of our largest competitor. In 2000, we performed approximately 19.8 million tests and handled roughly 6.4 million requisitions in our state-of-the-art, automated diagnostic laboratories. Our laboratory network services a diverse customer base of over 15,000 animal hospitals, and non-affiliated animal hospitals generated approximately 95% of our laboratory revenue in 2000. SERVICES. Our diagnostic spectrum includes over 300 different tests in the areas of chemistry, pathology, serotology, endocrinology, hematology, and microbiology, as well as tests specific to particular diseases. The average revenue per requisition is approximately $18. We do not conduct experiments on animals and are not engaged in animal research. Although modified to address the particular requirements of the species tested, the tests performed in our veterinary laboratories are similar to those performed in human clinical laboratories and utilize similar laboratory equipment and technologies. The growing concern for animal health, combined with the movement of veterinary medicine toward increasing specialization, should spur the migration of additional areas of human testing into the veterinary field. For example, we now provide cancer testing for household pets whereas several years ago, these tests were not available. Given the recent advancements in veterinary medical technology and the increased breadth and depth of knowledge required for the practice of veterinary medicine, many veterinarians solicit the knowledge and experience of our 85 specialists to interpret test results, consult on the diagnosis of illnesses and suggest treatment programs. This resource includes veterinarians, chemists, and other scientists with expertise in pathology, internal medicine, oncology, cardiology, dermatology, neurology and endocrinology. This depth of experience and expertise enables our specialists to suggest additional testing or provide diagnostic advice that assists the veterinarian in developing an appropriate treatment plan. Together with our specialist support, we believe the quality of our service further distinguishes our laboratory services. We maintain quality assurance programs to ensure that specimens are collected and transported properly, that tests are performed accurately and that client, patient and test information is reported and billed correctly. Our quality assurance programs include quality control testing of specimens of known concentration or reactivity to ensure accuracy and precision, routine checks and preventive maintenance of laboratory testing equipment, and personnel standards ensuring that only qualified personnel perform testing. As a result, we believe that our accuracy rate is over 99%. Page 45 LABORATORY NETWORK [MAP OF UNITED STATES SHOWING THE LOCATION OF OUR LABORATORIES] Our 15 laboratories enable us to service the entire United States. Our laboratory network includes: o two primary hubs that are open 24 hours per day and offer a full testing menu, including our most complex tests, o four secondary hubs that service large metropolitan areas, are open 24 hours per day and offer a wide testing menu, generally exclusive of our most complex tests; and o nine STAT laboratories that service other locations with demand sufficient to warrant nearby laboratory facilities and are open during daytime hours. We connect our laboratories to our customers with the industry's largest transportation network, which picks up an average of 20,000 to 25,000 samples daily through an extensive network of drivers and independent couriers. We derive a majority of our laboratory revenue from major metropolitan areas, where we offer twice-a-day pick-up service and same-day results. In addition, we also offer STAT reporting in these areas, which generally occurs within three hours of pick-up. Outside of these areas, we typically provide test results to veterinarians before 8:00 a.m. the following day. Veterinarian customers located outside the areas covered by our transportation network are serviced using our Test Express service. Users of the Test Express service send patient specimens by Federal Express to our Memphis laboratory, the proximity of which to the Federal Express primary sorting facility permits speedy and cost efficient testing. Page 46 SALES, MARKETING AND CUSTOMER SERVICE. We employ 40 full-time sales and field service representatives who market laboratory services and maintain relationships with existing customers. The sales force is commissioned-based and organized along geographic regions. We support our sales efforts by strengthening our industry-leading team of specialists, developing marketing literature, attending trade shows, participating in trade associations and providing educational services to veterinarians. In addition, we employ over 90 customer service representatives who respond to customer inquiries, provide test results and, when appropriate, introduce the customer to other services offered by the laboratory. Given the high margins we enjoy on many of our incremental tests, our sales force is compensated primarily on its success in maximizing the amount of business from existing customers as well as adding new customers. PERSONNEL. We employ a staff of approximately 1,025 full-time-equivalent employees in our laboratory network. We employ on average 310 employees at each of our primary laboratories. At a typical secondary laboratory, we employ on average 93 employees and at our typical STAT laboratory we employ on average 18 employees. We employ some of our specialists and enter into consulting arrangements with others. Our laboratory network consists of an eastern and western division and we employ a vice president to manage each region. We employ a manager at each of our laboratories and supervisors for each department within the laboratories. ANIMAL HOSPITALS At June 30, 2001, we operated 211 animal hospitals in 33 states that were supported by over 750 veterinarians. Our nationwide network of free-standing, full-service animal hospitals has facilities located in the following states:
California 45 Connecticut 3 New York* 21 New Mexico 3 Florida 17 North Carolina* 2 Illinois 16 Utah 2 Michigan 12 Alabama* 1 Pennsylvania 11 Arizona 1 Maryland 9 Georgia 1 Texas* 9 Hawaii 1 New Jersey* 8 Louisiana* 1 Indiana 7 Missouri 1 Massachusetts 7 Minnesota* 1 Virginia 6 Nebraska* 1 Nevada 5 South Carolina 1 Ohio* 5 Washington* 1 Alaska 4 West Virginia* 1 Delaware 4 Wisconsin 1 Colorado 3 * States where we manage animal hospitals owned by veterinary medical groups.
We seek to provide quality medical care in clean, attractive facilities that are open on average between 10 and 15 hours per day, six to seven days per week. Our typical animal hospital: o is located in a 4,000 to 6,000 square foot, free-standing facility in an attractive location; o has annual revenue between $1.0 million and $2.0 million; o is supported by three to five veterinarians; and Page 47 o has an operating history of over ten years. In addition to general medical and surgical services, we offer specialized treatments for companion animals, including advanced diagnostic services, internal medicine, oncology, ophthalmology, dermatology and cardiology. We also provide pharmacological products for use in the delivery of treatments by our veterinarians and pet owners. Many of our animal hospitals offer additional services, including grooming, bathing and boarding. We also sell specialty pet products at our hospitals, including pet food, vitamins, therapeutic shampoos and conditioners, flea collars and sprays, and other accessory products. As part of the growth strategy of our hospital business, we intend to continue our disciplined acquisition strategy by identifying high quality practices that may have value to be unlocked through the services and scale we can provide. Our typical candidate mirrors the profile of our existing hospital base. Acquisitions will be used to both expand in existing markets and enter new geographical areas. By undertaking prudent acquisitions, we are able to grow our hospital business without diluting the local market for veterinary services. PERSONNEL. Our animal hospitals generally employ a staff of between 10 to 30 full-time equivalent employees, depending upon the facility's size and customer base. The staff includes administrative and technical support personnel, three to five veterinarians, an office manager who supervises the day-to-day activities of the facility, and a small office staff. We employ a relatively small corporate staff to provide centralized administrative services to all of our animal hospitals. We actively recruit highly qualified veterinarians and technicians and are committed to supporting continuing education for our professional staff. We operate post-graduate teaching programs for veterinarians at seven of our facilities, which train approximately 40 veterinarians each year. We believe that these programs enhance our reputation in the veterinary profession and further our ability to continue to recruit the most talented veterinarians. We seek to establish an environment that supports the veterinarian in the delivery of quality medicine and fosters professional growth through increased patient flow and a diverse case mix, continuing education, state-of-the-art equipment and access to specialists. We believe our hospitals offer attractive employment opportunities to veterinarians because of this professional environment, competitive compensation programs, management opportunities, employee benefits not generally available to a sole practitioner, scheduling flexibility to accommodate personal lifestyles and the ability to relocate to different regions of the country. Further, we permit some of our veterinarians to participate with us in the ownership and operation of an animal hospital. In these circumstances, the veterinarian purchases an equity position in our animal hospital, generally between 10% and 25%, and is our partner in its operation. Typically, the salary of that veterinarian is based on a percentage of the revenue of the animal hospital that is generated by the veterinarian. We have established a Medical Advisory Board to support our operations. The Medical Advisory Board's function, under the direction of our Chief Medical Officer, is to recommend medical standards for our network of animal hospitals. The committee is comprised of leading veterinarians representing both the different geographic regions in which we operate and the medical specialties practiced by our veterinarians. Currently, four members of the Medical Advisory Board are faculty members at leading veterinary colleges in the United States. These members serve as medical consultants to us. MARKETING. Our marketing efforts are primarily directed towards our existing clients through customer education efforts. We inform and educate our clients about pet wellness and quality care through mailings of the Healthy Pet Magazine, a magazine focused on pet care and wellness published by an affiliate of ours, targeted demographic mailings regarding specific pet health issues and collateral health material available at each animal hospital. With these internal marketing programs, we seek to leverage our existing customer base by increasing the number of visits of existing clients and intensity of the services used during each visit. Further, reminder notices are used to increase awareness of the Page 48 advantages of regular, comprehensive veterinary medical care, including preventive care such as vaccinations, dental screening and geriatric care. We also enter into referral arrangements with local pet shops and humane societies to increase our client base. In addition, we seek to obtain referrals from veterinarians by promoting our specialized diagnostic and treatment capabilities to veterinarians and veterinary practices that cannot offer their clients these services. OWNERSHIP LIMITATIONS. Some states have laws that prohibit business corporations from providing veterinary services through the direct employment of veterinarians. At June 30, 2001, we operated 51 animal hospitals in 11 states with these types of ownership restrictions. In these states, instead of owning an animal hospital, we provide management services to veterinary medical groups. We do not consolidate the operating results of these hospitals for financial statement purposes. We provide our management services pursuant to long-term management agreements with the veterinary medical groups, ranging from 10 to 40 years, with non-binding renewal options where allowable. Pursuant to the management agreements, the veterinary medical groups are each solely responsible for all aspects of the practice of veterinary medicine, as defined by their respective state. We are responsible for providing the following services: o availability of all facilities and equipment; o day-to-day financial and administrative supervision and management; o maintenance of patient records; o recruitment of veterinarians and animal hospital staff; o marketing; and o malpractice and general insurance. As compensation for these services, we receive management fees, which are included in animal hospital revenue. SYSTEMS We maintain a nationwide management information system to support our veterinary laboratories. In 2000, we completed the migration of our animal hospital operations onto an enterprise-wide management information network. All of our financial and customer records and laboratory results are stored in computer databases, most of which may be accessed by our management. Substantially all of our animal hospitals utilize consistent patient accounting/point-of-sale software, and we are able to track the performance of hospitals on a per service, per veterinarian basis. Laboratory technicians and specialists are able to electronically access test results from remote testing sites, enabling our specialists from varying fields of veterinary medicine to assist in the interpretation of test results and help structure potential treatment programs. We expect that this operational visibility will lead to increases in laboratory, veterinarian and hospital productivity. We are continuing to upgrade and integrate our management information systems. The upgrade of the laboratory system will enable us to communicate diagnostic test results to veterinarian customers online and via electronic mail, a service that we believe will provide additional tools for veterinarians in their practice and will help to solidify our relationship with these clients. The upgrade of the animal hospital system will allow us to track performance data on a per customer basis. We expect this upgrade and integration to be substantially complete in early 2002. Page 49 COMPETITION The companion animal health care services industry is highly competitive and subject to continual change in the manner in which services are delivered and providers are selected. We believe that the primary factors influencing a customer's selection of an animal hospital are convenient location, recommendation of friends, reasonable fees, quality of care and convenient hours. Our primary competitors for our animal hospitals in most markets are individual practitioners or small, regional multi-clinic practices. In addition, some national companies in the pet care industry, including the operators of super-stores, are developing multi-regional networks of animal hospitals in markets that include our animal hospitals. Among veterinary diagnostic laboratories, we believe that quality, price, specialist support and the time required to report results are the major competitive factors. Although there are many individual clinical laboratories that provide a broad range of diagnostic testing services in the same markets serviced by us, few outsourced laboratory companies compete on a national level. Our client base is twice that of our primary competitor in the laboratory business. In addition to competing with dedicated veterinary laboratories, we face competition from several providers of on-site diagnostic equipment that allow veterinarians to perform their own laboratory tests. GOVERNMENT REGULATION The laws of many states prohibit business corporations from providing, or holding themselves out as providers of, veterinary medical care. These laws vary from state to state and are enforced by the courts and by regulatory authorities with broad discretion. We operate 51 hospitals in 11 states with these laws, including 21 in New York. Although we seek to structure our operations to comply with veterinary medicine laws of each state in which we operate, given the varying and uncertain interpretations of these laws, we may not be in compliance with restrictions on the corporate practice of veterinary medicine in all states. A determination that we are in violation of applicable restrictions on the practice of veterinary medicine in any state in which we operate could have a material adverse effect on us, particularly if we were unable to restructure our operations to comply with the requirements of that state. In addition, all of the states in which we operate impose various registration requirements. To fulfill these requirements, we have registered each of our facilities with appropriate governmental agencies and, where required, have appointed a licensed veterinarian to act on behalf of each facility. All veterinary doctors practicing in our clinics are required to maintain valid state licenses to practice. Acquisitions may be subject to pre-merger or post-merger review by governmental authorities for antitrust and other legal compliance. Adverse regulatory action could negatively affect our operations through the assessment of fines or penalties against us or the possible requirement of divestiture of one or more of our operations. EMPLOYEES At June 30, 2001, we had approximately 3,500 full-time-equivalent employees, including approximately 620 licensed veterinarians. None of our employees is a party to a collective bargaining agreement with the exception of our courier drivers in the State of New York. These employees are subject to a collective bargaining agreement expiring on July 10, 2003 with the Teamsters Local Union 813. We believe our employee relations to be good. PROPERTIES Our corporate headquarters and principal executive offices are located in West Los Angeles, California, in approximately 30,000 square feet of leased space. We maintain leased and owned facilities at 226 other locations that house our animal hospitals and laboratories. We own 62 facilities and the remainder are leased. We believe that our real property facilities are adequate for our current needs. Page 50 LEGAL PROCEEDINGS The Ohio Attorney General's office has filed a lawsuit in the Franklin County Court of Common Pleas in the State of Ohio in which the state alleged that our management of a veterinary medical group licensed to practice veterinary medicine in that state violates the Ohio statute prohibiting business corporations from providing, or holding themselves out as providers of, veterinary medical care. On March 20, 2001, the trial court in the case entered summary judgment in favor of the State of Ohio and issued an order enjoining us from operating in the State of Ohio in a manner that is in violation of the state statute. In response, we have restructured our operations in the State of Ohio in a manner that we believe conforms to the state law and the court's order. The Attorney General of the State of Ohio has informed us that it disagrees with our position that we are in compliance with the court's order. In June 2001, we appeared at a status conference before the trial court at which time the court directed the parties to meet together to attempt to settle this matter. Consistent with the trial court's directive, we currently are engaged in discussions with the Attorney General's office in the State of Ohio in an attempt to resolve this matter. We are scheduled to appear for an additional status conference in August 2001 to report to the court with regard to the terms of a settlement or, alternatively, that the parties cannot reach agreement, in which case we may be subject to further court proceedings to review our restructured operations under the Ohio statute. Our five animal hospitals in the State of Ohio have a book value of $6.2 million. If we were required to discontinue our operations in the State of Ohio, we may not be able to dispose of the hospital assets for their book value. In the 12 months ended June 30, 2001, the animal hospitals located in the State of Ohio generated EBITDA of $792,000. We are a party to various other legal proceedings that arise in the ordinary course of our business. Although we cannot determine the ultimate disposition of these proceedings, we do not believe that adverse determinations in any or all of these proceedings would have a material adverse effect upon our financial condition, liquidity or results of operations. Page 51 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following persons are our directors and executive officers:
DIRECTORS AGE PRESENT POSITION ---------------- ---- ------------------------------- Robert L. Antin 51 Chief Executive Officer, President and Chairman of our Board of Directors Arthur J. Antin 54 Chief Operating Officer, Senior Vice President, Secretary and Director Neil Tauber 50 Senior Vice President of Development Tomas W. Fuller 43 Chief Financial Officer, Vice President and Assistant Secretary Dawn R. Olsen 42 Vice President, Controller John M. Baumer 33 Director John G. Danhakl 45 Director Melina Higgins 33 Director Peter J. Nolan 43 Director
Our executive officers are appointed by and serve at the discretion of our board of directors. Robert L. Antin and Arthur J. Antin are brothers. There are no other family relationships between any of our directors and/or any executive officers. ROBERT L. ANTIN, one of our founders, has served as our Chief Executive Officer, President and Chairman since our inception in 1986. From September 1983 until our founding, Mr. Antin was President, Chief Executive Officer, a director and co-founder of AlternaCare Corp., a publicly held company that owned, operated and developed freestanding out-patient surgical centers. From July 1978 until September 1983, Mr. Antin was employed as an officer by American Medical International, Inc., an owner and operator of health care facilities. While at American Medical International, Inc., Mr. Antin initially served as Director of Marketing of Professional Hospital Services, then as Director of New Business Development responsible for non-hospital related acquisitions and development, and then as a Vice President of American Medical International, Inc. and President of AMI Ambulatory Center, Inc., a subsidiary of American Medical International, Inc. operating a chain of ambulatory care centers. Mr. Antin received his MBA with a certification in hospital and health administration from Cornell University. ARTHUR J. ANTIN, one of our founders, has served as our Chief Operating Officer, Senior Vice President, Secretary and a director since our inception. From October 1983 to September 1986, Mr. Antin served as Director of Marketing/Investor Relations of AlternaCare Corp. At AlternaCare Corp., Mr. Antin developed and implemented marketing strategies for a network of outpatient surgical centers. Mr. Antin received an MA in Community Health from New York University. NEIL TAUBER, one of our founders, has served as our Senior Vice President of Development since our inception. From 1984 to 1986, Mr. Tauber served as the Director of Corporate Development at AlternaCare. At AlternaCare, Mr. Tauber was responsible for the acquisition of new businesses and syndication to hospitals and physician groups. From 1981 to 1984, Mr. Tauber served as Chief Operating Officer of MDM Services, a wholly owned subsidiary of Mediq, a publicly held health care company, where he was responsible for operating and developing a network of retail dental centers and industrial medical clinics. Mr. Tauber holds an MBA from Wagner College. TOMAS W. FULLER joined us in January 1988 and served as our Vice President and Controller until November 1990 when he became Chief Financial Officer. From 1980 to 1987, Mr. Fuller served as an audit manager for Arthur Andersen LLP. Mr. Fuller received his BA in business/economics from the University of California at Los Angeles. Page 52 DAWN R. OLSEN joined us in January 1997 as Vice President, Controller. From November 1993 to March 1996, Ms. Olsen served as Senior Vice President, Controller of Optel, Inc., a privately held telecommunications company. From 1987 to 1993, Ms. Olsen served as Assistant Controller and later as Vice President, Controller of Qintex Entertainment, Inc., a publicly held television film distribution and production company. From 1981 to 1987, Ms. Olsen served as an audit manager for Arthur Andersen LLP. Ms. Olsen is a certified public accountant and received her BS in business/accounting from California State University, Northridge. JOHN M. BAUMER has served as a director since September 2000. Mr. Baumer is a partner in Leonard Green & Partners, where he has been employed since May 1999. Prior to joining Leonard Green & Partners, he served as a Vice President in the Corporate Finance Division of Donaldson, Lufkin & Jenrette Securities Corporation, or DLJ in Los Angeles. Prior to joining DLJ in 1995, Mr. Baumer worked at Fidelity Investments and Arthur Andersen. Mr. Baumer currently serves on the boards of directors of Intercontinental Art, Inc. and Petco Animal Supplies, Inc. Mr. Baumer is a 1990 graduate of the University of Notre Dame. He received his MBA from the Wharton School at the University of Pennsylvania. JOHN G. DANHAKL has served as a director since September 2000. Mr. Danhakl is a partner of Leonard Green & Partners. Prior to becoming a partner at Leonard Green & Partners in 1995, Mr. Danhakl was a Managing Director at DLJ and had been with DLJ since 1990. Prior to joining DLJ, Mr. Danhakl was a Vice President at Drexel Burnham Lambert from 1985 to 1990. Mr. Danhakl presently serves on the boards of directors of The Arden Group, Inc., Big 5 Sporting Goods, Inc., Communications & Power Industries, Twin Laboratories Corporation, Diamond Auto Glass Works, Liberty Group Publishing, Leslie's Poolmart, Inc. and Petco Animal Supplies, Inc., and on the board of managers of AsianMedia Group LLC. Mr. Danhakl is a graduate of the University of California at Berkeley. He received his MBA from the Harvard Business School. MELINA HIGGINS has served as a director since September 2000. Ms. Higgins is Chief Financial Officer of GS Mezzanine Partners II, L.P. and GS Mezzanine II Offshore, L.P., leveraged mezzanine funds managed by Goldman, Sachs & Co. Ms. Higgins has been with Goldman Sachs for ten years and has been working with Goldman Sachs mezzanine funds since their inception in 1996. Ms. Higgins presently serves as a director on the boards of directors of the following companies in which GS Mezzanine Partners has invested: Kranson Industries, Inc. and Western Nonwovens Inc. Ms. Higgins holds an MBA from Harvard Business School and a BA from Colgate University. PETER J. NOLAN has served as a director since September 2000. Mr. Nolan became a partner of Leonard Green & Partners in April 1997. Mr. Nolan previously served as Managing Director and Co-Head of DLJ's Los Angeles Investment Banking Division since 1990. Prior to that, Mr. Nolan had been a Vice President in corporate finance at Drexel Burnham Lambert since 1986. Prior to that, Mr. Nolan was a First Vice President at Prudential Securities, Inc. where he had worked from 1982 to 1986, after working as an Associate at Manufacturers Hanover Trust. He presently serves on the boards of directors of M2 Automotive, Liberty Group Publishing, Inc., Contractors Source, Inc. and White Cap Industries, Inc. and on the board of managers of AsianMedia Group LLC. Mr. Nolan is a graduate of Cornell University with a BS in Agricultural Economics and Finance. He received his MBA from Cornell University. BOARD OF DIRECTORS AND COMMITTEES Upon the closing of this offering, we will have authorized six directors. In accordance with the terms of our certificate of incorporation, the terms of office of our board of directors will be divided into three classes. As a result, a portion of our board of directors will be elected each year. The division of the three classes and their respective election dates are as follows: o the class I directors' term will expire at the annual meeting of stockholders to be held in 2002; o the class II directors' term will expire at the annual meeting of stockholders to be held in 2003; and Page 53 o the class III directors' term will expire at the annual meeting of stockholders to be held in 2004. At each annual meeting of stockholders after the initial classification, the successors to directors whose terms will then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. In addition, our bylaws provide that the authorized number of directors may be changed by an amendment to the bylaws duly adopted by the board of directors or by the stockholders, or by a duly adopted amendment to our certificate of incorporation. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the total number of directors. Our board of directors intends to create an audit committee and a compensation committee. We expect that our audit committee will be comprised of three independent directors whom it will appoint and will be charged with the following responsibilities: o recommending the engagement of our independent public accountants; o reviewing the scope of the audit to be conducted by the independent public accountants; o meeting periodically with the independent public accountants and our Chief Financial Officer to review matters relating to our financial statements, our accounting principles and our system of internal accounting controls; and o reporting its recommendations as to the approval of our financial statements to the board of directors. We anticipate that the compensation committee will be composed of at least two independent directors. The compensation committee will be responsible for considering and making recommendations to the board of directors regarding executive compensation and will be responsible for administering our stock option and executive incentive compensation plans. DIRECTOR COMPENSATION Our directors are not entitled to any compensation for serving as a director. Directors may be reimbursed for the actual reasonable costs incurred in connection with attendance at board meetings. Upon the closing of this offering, our directors who are not also our employees will receive $1,000 for each meeting of the board of directors that they attend plus reimbursement of all out-of-pocket expenses incurred in attending such meeting. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of our executive officers or directors presently serves, or in the past has served, on the compensation committee of any other company with which we conduct business, nor do we expect any member of our compensation committee to serve, or in the past to have served, on the compensation committee of a company with which we conduct business. EXECUTIVE COMPENSATION The following table sets forth certain information with respect to compensation awarded to, earned by or paid to each person who served as our Chief Executive Officer or was one of our four other most highly compensated executive officers during the fiscal year ended December 31, 2000. We refer to these officers as our named executive officers. Page 54
SUMMARY COMPENSATION TABLE Long Term Compensation; Awards; Securities Underlying OPTIONS/SARS OTHER ANNUAL ------------- ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (#) (2) COMPENSATION - ------------------------------------ ------ -------- ---------- ------------ ------------- ------------ Robert L. Antin (1) Chairman of the Board, 2000 $364,000 -- $ 23,766 (6) 36,000 $7,014,300(3) President and 1999 364,000 $327,600 (4) -- -- 21,390 Chief Executive Officer 1998 350,000 315,000 (5) -- -- 16,750 Arthur J. Antin (1) Chief Operating Officer, 2000 260,000 -- 25,428 (6) 40,000 4,545,225(3) Senior Vice President and 1999 260,000 208,000 (4) -- -- 22,885 Secretary 1998 250,000 200,000 (5) -- -- 18,510 Neil Tauber (1) 2000 197,000 -- 21,631 (6) 25,000 2,859,319(3) Senior Vice President of' 1999 197,600 138,320 (4) -- -- 19,467 Development 1998 190,000 70,989 -- -- 14,250 Tomas W. Fuller (1) Chief Financial Officer, Vice 2000 187,200 -- 18,145(6) 25,000 2,867,436(3) President and Assistant 1999 187,200 131,040 (4) -- -- 16,330 Secretary 1998 180,000 121,406 (5) -- -- 9,750 Dawn R. Olsen 2000 141,000 35,000 -- 42,995 -- Vice President and 1999 131,000 9,770 (4) -- -- -- Controller 1998 125,000 13,300 (5) -- 15,500 -- - -------------- (1) For a description of the employment agreement between us and officer, see below. (2) All numbers reflect the number of shares of our common stock subject to options granted during the fiscal year. (3) Consists of amounts paid to these officers in connection with the recapitalization which includes amounts paid under then existing employment agreements and in consideration of executing non-competition agreements. (4) Reflects the fair market value on January 20, 2000 of restricted stock bonus awards granted in January 2000 for services rendered during the fiscal year ended December 31, 1999. (5) Reflects the fair market value on February 12, 1999 of restricted stock bonus awards granted in February 1999 for services rendered during the fiscal year ended December 31 ,1998. (6) Represents amounts paid as automobile allowance.
Page 55 OPTION/SAR GRANTS IN THE LAST FISCAL YEAR The following table sets forth certain information regarding the grant of stock options to purchase shares of our common stock made during the fiscal year ended December 31, 2000 to our named executive officers.
Individual Grants - --------------------------------------------------------------------------------------- Potential Realizable Value Number of at Assumed Rate of Stock Securities Percent of Total Price Appreciation for Underlying Options Granted to Exercise or Option Term (1) Option/SARs Employees in Base Price Expiration ------------------------- Name Granted (#) Fiscal Year (2) ($/SH) (3) Date 5% 10% - ------------------- ------------- ------------------ ----------- ---------- ---------- ---------- Robert L. Antin 36,000(4) 2.7% $1.00 9/20/10 $ 22,640 $ 57,375 Arthur J. Antin 40,000(4) 3.0% 1.00 9/20/10 25,156 63,750 Neil Tauber 25,000(4) 1.9% 1.00 9/20/10 15,722 39,844 Tomas W. Fuller 25,000(4) 1.9% 1.00 9/20/10 15,722 39,844 Dawn R. Olsen 23,000(5) 1.7% 1.00 9/20/10 14,465 36,656 19,995(6) 1.5% 0.20 9/20/10 28,571 47,863 - --------------- (1) The potential realizable value is based on the assumption that our common stock appreciates at the annual rate shown (compounded annually) from the date of grant until the expiration of the option term. These amounts are calculated pursuant to applicable requirements of the Commission and do not represent a forecast of the future appreciation of our common stock. (2) Options covering an aggregate of 1,325,670 shares were granted to eligible persons under our stock incentive plan during the fiscal year ended December 31, 2000. (3) The exercise price and tax withholding obligations related to exercise may be paid by delivery of already owned shares, subject to specified conditions. (4) Options vest in 24 equal monthly installments commencing on October 1, 2001. (5) Options vest in 30 equal monthly installments commencing on July 1, 2002. (6) Options vested on September 20, 2000.
Page 56 OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES The following table sets forth, for each of our named executive officers, certain information regarding the exercise of stock options to purchase shares of our common stock during the fiscal year ended December 31, 2000, the number of shares of common stock underlying stock options held at fiscal year end and the value of options held at fiscal year end.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS AT SHARES FISCAL YEAR END (#) FISCAL YEAR END ($)(1) ACQUIRED UPON VALUE ----------------------------- ------------------------------- NAME EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------ -------------- ----------- ----------- ------------- ----------- --------------- Robert L. Antin 1,205,000 $5,794,375 -- 36,000 -- -- Arthur J. Antin 678,500 3,714,042 -- 40,000 -- -- Neil Tauber 525,000 2,685,775 -- 25,000 -- -- Tomas W. Fuller 460,667 2,364,071 -- 25,000 -- -- Dawn R. Olsen 30,500 90,813 19,995 23,000 15,996 -- - -------------- (1) There was no public trading market for our common stock as of December 31, 2000. Accordingly, these values have been calculated based on our board of directors' determination of the fair market value of the underlying shares as of December 31, 2000 of $1.00 per share, less the applicable exercise price per share, multiplied by the number of underlying shares.
1996 STOCK INCENTIVE PLAN On November 7, 1995, we adopted, and on July 19, 1996, our stockholders approved, the 1996 Stock Incentive Plan. On August 6, 2001, we adopted and our stockholders approved an amendment to the 1996 plan. The 1996 plan is intended to secure for us the benefits arising from stock ownership by selected key employees as our board of directors may from time to time determine. The following are the material terms of the 1996 plan: o SHARES SUBJECT TO PLAN. 1,325,670 shares of our common stock have been reserved for issuance under the 1996 plan. Unexercised options that are subsequently reacquired by us may be available for reissuance under the 1996 plan. The number of shares reserved for issuance is generally subject to equitable adjustment upon the occurrence of any stock dividend or other distribution, recapitalization, stock split, reorganization, merger, consolidation, combination, repurchase, or share exchange, or other similar corporate transaction or event. o ADMINISTRATION. Upon the closing of this offering, the 1996 plan will be administered by the compensation committee as designated by our board of directors. Each member of the committee is a "nonemployee director" (within the meaning of Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934) and an "outside director" (within the meaning of Section 162(m) of the Internal Revenue Code). The committee has authority to construe and interpret the 1996 plan and any awards made thereunder, to grant and determine the terms of awards and to make any necessary rules and regulations for the administration of the 1996 plan. o ELIGIBILITY. Options may be granted to our directors, officers, employees and consultants and those of our subsidiaries. The 1996 plan limits to 500,000 the number of shares that can be granted to any employee in any calendar year. Page 57 o TYPE OF AWARDS. Upon the closing of this offering, the 1996 plan will permit the compensation committee to grant stock options. The 1996 plan provides for grants of both incentive stock options, also known as ISOs, within the meaning of Section 422 of the Internal Revenue Code, and non-qualified stock options that do not qualify as ISOs. o AMENDMENT AND TERMINATION. The 1996 plan may be amended by the board of directors, at any time, subject to stockholder approval where necessary, to satisfy federal tax or other applicable laws or stock exchange requirements. The 1996 plan will terminate no later than July 19, 2006. o EXERCISABILITY, VESTING OF STOCK OPTIONS AND PRICE. The stock options will vest at the times and upon the conditions that the committee may determine, and the price at which shares subject to any stock options may be purchased will be reflected in each particular stock option agreement. 2001 STOCK INCENTIVE PLAN On August 6, 2001, we adopted, and our stockholders approved, the 2001 Stock Incentive Plan. The 2001 plan is intended to secure for us the benefits arising from stock ownership by selected key employees as our board of directors may from time to time determine. The following are the material terms of the 2001 plan: o SHARES SUBJECT TO PLAN. 2,000,000 shares of our common stock have been reserved for issuance under the 2001 plan. Unexercised options that are subsequently reacquired by us may be available for reissuance under the 2001 plan. The number of shares reserved for issuance is generally subject to equitable adjustment upon the occurrence of any stock dividend or other distribution, recapitalization, stock split, reorganization, merger, consolidation, combination, repurchase, or share exchange, or other similar corporate transaction or event. o ADMINISTRATION. Upon the closing of this offering, the 2001 plan will be administered by the compensation committee as designated by our board of directors. Each member of the committee is a "nonemployee director" (within the meaning of Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934) and an "outside director" (within the meaning of Section 162(m) of the Internal Revenue Code). The committee has authority to construe and interpret the 2001 plan and any awards made thereunder, to grant and determine the terms of awards and to make any necessary rules and regulations for the administration of the 2001 plan. o ELIGIBILITY. Options may be granted to our directors, officers, employees and consultants and our subsidiaries. The 2001 plan limits to 500,000 the number of shares that can be granted to any employee in any calendar year. o TYPE OF AWARDS. Upon the closing of this offering, the 2001 plan will permit the compensation committee to grant stock options. The 2001 plan provides for grants of both ISOs and non-qualified stock options that do not qualify as ISOs. o AMENDMENT AND TERMINATION. The 2001 plan may be amended by the board of directors, at any time, subject to stockholder approval where necessary, to satisfy federal tax or other applicable laws or stock exchange requirements. The 2001 plan will terminate no later than August 5, 2011. Page 58 o EXERCISABILITY, VESTING OF STOCK OPTIONS AND PRICE. The stock options will vest at the times and upon the conditions that the committee may determine, and the price at which shares subject to the stock option may be purchased will be reflected in each particular stock option agreement. EMPLOYMENT AGREEMENTS We have employment agreements with Robert L. Antin, Arthur J. Antin, Neil Tauber and Tomas W. Fuller. ROBERT L. ANTIN. Mr. Antin's employment agreement provides for Mr. Antin to serve as our Chairman of Board, Chief Executive Officer and President for a term equal to the longer of: (x) five years, and (y) three years from any given date, such that there shall always be a minimum of at least three years remaining under his employment agreement. The employment agreement provides for Mr. Antin to receive an annual base salary and additional compensation of $500,000, subject to annual increase based on the Consumer Price Index for Los Angeles County, and to participate in a bonus plan based on annual performance standards to be established by the board of directors. If Mr. Antin's employment is terminated due to his death or disability, the employment agreement provides that we will pay Mr. Antin or his estate, as applicable, his remaining base salary during the remaining scheduled term of the employment agreement, reduced by any amounts paid under any life insurance policy or long-term disability insurance policy, as applicable, maintained by us for the benefit of Mr. Antin, accelerated vesting of options and the continuation of specified benefits. If Mr. Antin terminates the employment agreement for cause, if we terminate the employment agreement without cause or in the event of a change of control, in which event the employment of Mr. Antin terminates automatically, we will pay Mr. Antin his remaining base salary during the remaining scheduled term of the employment agreement and an amount based on his past bonuses, accelerate the vesting of his options and continue to provide specified benefits. In these circumstances, Mr. Antin may exercise his options during the remainder of their term. Mr. Antin may terminate his employment with us at any time, in which event he is entitled to receive all accrued and unpaid salary and other compensation and all accrued and unused vacation and sick pay. If any of the payments due Mr. Antin upon termination qualify as "excess parachute payments" under the Internal Revenue Code, Mr. Antin also is entitled to an additional payment to cover the tax consequences associated with excess parachute payments. ARTHUR J. ANTIN. Mr. Antin's employment agreement provides for Mr. Antin to serve as our Chief Operating Officer for a term equal to the longer of: (x) five years, or (y) two years from any given date, such that there shall always be a minimum of at least two years remaining under his employment agreement. The employment agreement provides for Mr. Antin to receive an annual base salary and additional compensation of $400,000, subject to annual increase based on the Consumer Price Index for Los Angeles County, and to participate in a bonus plan based on annual performance standards to be established by the board of directors. If Mr. Antin's employment is terminated due to his death or disability, the employment agreement provides that we will pay Mr. Antin or his estate, as applicable, his remaining base salary during the remaining scheduled term of the employment agreement (reduced by any amounts paid under any life insurance policy or long-term disability insurance policy, as applicable, maintained by us for the benefit of Mr. Antin), accelerated vesting of options and the continuation of benefits. If Mr. Antin terminates the employment agreement for cause, if we terminate the employment agreement without cause or in the event of a change of control, in which event the employment of Mr. Antin terminates automatically, we will pay Mr. Antin his remaining base salary during the remaining scheduled term of the employment agreement and an amount based on his past bonuses, accelerate the vesting of his options and continue specified benefits. In these circumstances, Mr. Antin may exercise his options during the remainder of their term. Page 59 Mr. Antin may terminate his employment with us at any time in which event he is entitled to receive all accrued and unpaid salary and other compensation and all accrued and unused vacation and sick pay. If any of the payments due Mr. Antin upon termination qualify as "excess parachute payments" under the Internal Revenue Code, Mr. Antin also is entitled to an additional payment to cover the tax consequences associated with excess parachute payments. NEIL TAUBER. Mr. Tauber's employment agreement provides for Mr. Tauber to serve as our Senior Vice President for a term of three years. The employment agreement provides for Mr. Tauber to receive an annual base salary and additional compensation of $248,000, subject to annual increase based on the Consumer Price Index for Los Angeles County, and to participate in a bonus plan based on annual performance standards to be established by the board of directors. If Mr. Tauber's employment is terminated due to his death or disability, the employment agreement provides that we will pay Mr. Tauber or his estate, as applicable, the amount he would have earned as base salary during the 12 months following the termination date (reduced by any amounts paid under any life insurance policy or long-term disability insurance policy, as applicable, maintained by us for the benefit of Mr. Tauber), accelerate the vesting of his options and the continue specified benefits for the 12 months following the termination date. In these circumstances, Mr. Tauber may exercise his options during the remainder of their term. If Mr. Tauber terminates the employment agreement for cause, if we terminate the employment agreement without cause or in the event of a change of control, in which event the employment of Mr. Tauber terminates automatically, we will pay Mr. Tauber the amount he would have earned as base salary during the 12 months following the termination date (or a lesser amount if Mr. Tauber is terminated by us without cause and he had not completed 15 consecutive months of service), an amount based on his past bonuses, accelerated vesting of options and the continuation of specified benefits for the 12 months following the termination date. Mr. Tauber may terminate his employment with us at any time in which event he is entitled to receive all accrued and unpaid salary and other compensation and all accrued and unused vacation and sick pay. If any of the payments due Mr. Tauber upon termination qualify as "excess parachute payments" under the Internal Revenue Code, Mr. Tauber also is entitled to an additional payment to cover the tax consequences associated with excess parachute payments. TOMAS W. FULLER. Mr. Fuller's employment agreement provides for Mr. Fuller to serve as our Chief Financial Officer for a term of three years. The employment agreement provides for Mr. Fuller to receive an annual base salary and additional compensation of not less than $235,000, subject to annual increase based on the Consumer Price Index for Los Angeles County, and to participate in a bonus plan based on annual performance standards to be established by the board of directors. If Mr. Fuller's employment is terminated due to his death or disability, the employment agreement provides that we will pay Mr. Fuller or his estate, as applicable, the amount he would have earned as base salary during the 12 months following the termination date (reduced by any amounts paid under any life insurance policy or long-term disability insurance policy, as applicable, maintained by us for the benefit of Mr. Fuller), accelerated vesting of options and the continuation of specified benefits for the 12 months following the termination date. If Mr. Fuller terminates the employment agreement for cause, if we terminate the employment agreement without cause or in the event of a change of control, in which event the employment of Mr. Fuller terminates automatically, we will pay Mr. Fuller the amount he would have earned as base salary during the 12 months following the termination date and an amount based on his past bonuses, accelerate the vesting of his options and continue specified benefits for the 12 months following the termination date. In these circumstances, Mr. Fuller may exercise his options during the remainder of their term. Page 60 Mr. Fuller may terminate his employment with us at any time in which event he is entitled to receive all accrued and unpaid salary and other compensation and all accrued and unused vacation and sick pay. If any of the payments due Mr. Fuller upon termination qualify as "excess parachute payments" under the Internal Revenue Code, Mr. Fuller also is entitled to an additional payment to cover the tax consequences associated with excess parachute payments. In the event of a change of control and at our request, each of Messrs. Robert L. Antin, Arthur J. Antin, Neil Tauber and Tomas W. Fuller is obligated to continue to serve under his employment agreement for a period of up to 180 days following the termination date at his then current base salary. Page 61 PRINCIPAL STOCKHOLDERS The following table sets forth information regarding beneficial ownership of our common stock as of June 30, 2001 by: o each of our directors; o each of our named executive officers; o all of our directors and executive officers as a group; and o all other stockholders known by us to beneficially own more than 5% of our outstanding common stock. Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of the date as of which this information is provided, and not subject to repurchase as of that date, are deemed outstanding. These shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as indicated in the notes to this table, and except pursuant to applicable community property laws, each stockholder named in the table has sole voting and investment power with respect to the shares shown as beneficially owned by them. Percentage ownership is based on 17,524,335 shares of common stock outstanding on June 30, 2001 and _________ shares of common stock outstanding after completion of this offering. This table assumes no exercise of the underwriters' over-allotment option. Unless otherwise indicated, the address for each of the stockholders listed below is c/o Veterinary Centers of America, Inc., 12401 West Olympic Boulevard, Los Angeles, California 90064.
Number of Shares of Common Stock Percent of Beneficially Common Stock Name and Address of Beneficial Owner Owned Outstanding - -------------------------------------------- ------------ ------------------ Before After Offering Offering -------- -------- Leonard Green & Partners, L.P. entities (1).. 14,336,117 (2) 81.8% Robert L. Antin (3).......................... 1,806,380 10.3 Arthur J. Antin.............................. 400,005 2.3 Tomas W. Fuller.............................. 200,010 1.1 Neil Tauber.................................. 49,995 * Dawn R. Olsen ............................... 19,995 (4) * John M. Baumer (5)........................... 0 * John G. Danhakl (5).......................... 0 * Melina Higgins............................... 0 * Peter J. Nolan (5)........................... 0 * All directors and executive officers as a group (9 persons)............................ 2,476,385 (6) 14.1% - ------------------ * Indicates less than one percent (1) The address of Leonard Green & Partners, L.P. is 11111 Santa Monica Boulevard, Suite 2000, Los Angeles, California 90025. Page 62 (2) Includes: (a) 9,221,042 shares of common stock held by Green Equity Investors III, L.P., (b) 1,851,615 shares of common stock held by VCA Co-Investment Fund I, LLC, (c) 833,220 shares of common stock held by VCA Co-Investment Fund II, LLC, (d) 833,220 shares of common stock held by VCA Co-Investment Fund III, LLC, (e) 462,900 shares of common stock held by VCA Co-Investment Fund IV, LLC, (f) 462,900 shares of common stock held by VCA Co-Investment Fund V, LLC, (g) 185,175 shares of common stock held by VCA Co-Investment Fund VI, LLC, (h) 462,900 shares of common stock held by VCA Co-Investment Fund VII, LLC, and (i) 23,145 shares of common stock held by VCA Co-Investment Fund VIII, LLC. Each VCA Co-Investment Fund LLC is managed by Leonard Green & Partners, L.P. (3) Includes shares held by family trusts established for the benefit of Mr. Antin's family. (4) Represents options that are or will become exercisable on or before August 29, 2001. (5) Each of John M. Baumer, John G. Danhakl and Peter J. Nolan is a partner of Leonard Green & Partners, L.P. As such, Messrs. Baumer, Danhakl and Nolan may be deemed to have shared voting and investment power with respect to all shares held by Green Equity Investors III, L.P. These individuals disclaim beneficial ownership of the securities held by Green Equity Investors III, L.P., except to the extent of their respective pecuniary interests therein. (6) Includes: (a) 2,456,390 shares of common stock; and (b) 19,995 shares of common stock issuable upon exercise of options.
Page 63 RELATED PARTY TRANSACTIONS RECAPITALIZATION TRANSACTION On September 20, 2000, we completed a recapitalization with an entity controlled by Leonard Green & Partners. In the recapitalization, each outstanding share of our common stock, other than shares retained by management and employees, was canceled and converted into the right to receive $15.00. The recapitalization was financed by: o the contribution of $155.0 million by a group of investors led by Leonard Green & Partners; o our issuance of an aggregate of $20.0 million of senior subordinated notes; o borrowings of $250.0 million under our $300.0 million credit facility; and o our issuance of an aggregate of $100.0 million of senior notes. Upon the completion of the recapitalization, Robert L. Antin, Arthur J. Antin, Neil Tauber, Tom Fuller, other stockholders and a group of investors led by Leonard Green & Partners acquired 17,524,337 shares of common stock at a purchase price of $1.00 per share. Goldman Sachs Credit Partners L.P. is a lender under our credit facility. GS Mezzanine Partners II, L.P. and G.S. Mezzanine II Offshore, L.P., affiliates of Goldman, Sachs & Co., purchased portions of our securities for an aggregate purchase price of $85.0 million. Melina Higgins, one of our directors, is the Chief Financial Officer of GS Mezzanine Partners II, L.P. and GS Mezzanine II Offshore, L.P. The following partners of Leonard Green & Partners also serve on our board of directors: John M. Baumer, John G. Danhakl and Peter J. Nolan. STOCKHOLDERS AGREEMENT On September 20, 2000, we entered into a stockholders agreement with each of our stockholders. Under the stockholders agreement, each party to the stockholders agreement has call rights with respect to shares of common stock and stock options held by members of management in the event of termination of employment for any reason. Upon the closing of an initial public offering of our shares of common stock, o Call rights will expire on one-half of Robert Antin's shares that initially were subject to the stockholders agreement. Of the remaining shares, call rights will expire ratably over a six month period commencing on the closing date as though the initial public offering had occurred on October 1, 2001; o Call rights will expire on one-half of Arthur Antin's, Neil Tauber's and Tomas Fuller's shares that initially were subject to the stockholders agreement. Of the amount remaining, call rights will expire on one-half of those shares six months following the closing date, and on the remaining one-half one year following the closing date, in each event as though the initial public offering had occurred on October 1, 2001; and o Call rights will expire on one-half of the other employee's shares that initially were subject to the stockholders agreement. Of the remaining shares, call rights will expire ratably over an 18-month period commencing on the closing date as though the initial public offering had occurred on October 1, 2001. The stockholders agreement also provided for the discharge of $688,000 of indebtedness owing to us from Robert L. Antin and Arthur J. Antin and any and all interest accrued thereon. This indebtedness was discharged on January 3, 2001. Page 64 MANAGEMENT SERVICES AGREEMENT On September 20, 2000, we entered into a 10-year management services agreement with Leonard Green & Partners. The agreement provides that Leonard Green & Partners will provide general investment-banking services, management, consulting and financial planning services and transaction-related financial advisory and investment banking services to us and our subsidiaries. We paid a one-time structuring fee of $7.5 million to Leonard Green & Partners in September 2000 under the agreement. Leonard Green & Partners receives an annual fee of $2.5 million as compensation for the general services and normal and customary fees for transaction-related services. If the group of investors led by Leonard Green & Partners invests any additional capital pursuant to the agreement, this annual fee will increase by 1.6% of the amount of the additional investment. We also agreed to indemnify Leonard Green & Partners and the other investors for any losses and liabilities arising out of the agreement. In 2000 and the six months ended June 30, 2001, we paid management fees in an aggregate amount of $620,000 and $1.2 million. NON-COMPETITION AGREEMENTS On September 20, 2000, Robert L. Antin, Arthur J. Antin, Neil Tauber and Tomas W. Fuller each entered into non-competition agreements with us for a term of three years. Generally, the non-competition agreements restrict these individuals from: o owning, operating, managing or controlling or in any way being connected with a veterinary medical or laboratory practice within certain geographical areas; o disclosing our confidential information; and o soliciting or diverting away our customers and employees. In consideration for the execution of the non-competition agreements, we paid approximately $6.7 million, $4.3 million, $2.7 million and $2.8 million to Robert L. Antin, Arthur J. Antin, Neil Tauber and Tomas W. Fuller, or their affiliates, respectively. INVESTMENT IN ZOASIS During the year ended December 31, 2000, we made a $5.0 million investment in Zoasis.com, Inc., an internet start-up company, majority owned by Robert L. Antin, our Chief Executive Officer and Chairman of the Board. During the six months ended June 30, 2001, we incurred $300,000 of marketing expense for services provided by Zoasis. During the year ended December 31, 2000, we incurred $81,000 of marketing expense for services provided by Zoasis. INVESTMENT IN VET'S CHOICE AND THE WISDOM GROUP, L.P. In September 2000, we sold our 50.5% equity interest in Vet's Choice to Heinz Pet Products. We received $1.5 million in the sale. We subsequently used $1.0 million of the proceeds to acquire the limited partner interests in the Wisdom Group, L.P., of which members of our executive management had a 30.5% ownership interest. Page 65 RECEIPT OF PROCEEDS FROM THIS OFFERING Affiliates of Leonard Green & Partners own 2,826,000 shares of our 14% series A senior redeemable exchangeable cumulative preferred stock and 2,800,000 shares of our 12% series B junior redeemable cumulative preferred stock. Affiliates of Goldman, Sachs & Co. own 122,123 shares of our 14% series A senior redeemable exchangeable cumulative preferred stock and 121,000 shares of our 12% series B junior redeemable cumulative preferred stock and, as of June 30, 2001, held approximately $76.7 million aggregate principal amount of our senior notes and approximately $14.2 million aggregate principal amount of our senior subordinated notes. We intend to use a portion of the net proceeds from this offering to repay $35.0 million aggregate principal amount of the senior notes on a pro rata basis and redeem all of the shares of the preferred stock. In addition, if the underwriters exercise their over-allotment option, we will use a portion of the additional net proceeds to repay up to an additional $6.0 million aggregate principal amount of our senior notes and up to $7.0 million aggregate principal amount of our senior subordinated notes, in each case on a pro rata basis. See "Use of Proceeds." Page 66 DESCRIPTION OF CAPITAL STOCK This prospectus contains a summary of the material terms of our capital stock. The following description of our capital stock is subject to, and qualified in its entirety by, our certificate of incorporation and bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part, and by the provisions of applicable Delaware law. Following this offering, our authorized capital stock will consist of 70,000,000 shares of common stock, par value $.001 per share, and 5,000,000 shares of preferred stock, par value $.001 per share. As of the date of this prospectus, 17,524,335 shares of our common stock are outstanding and held of record by approximately 32 recordholders and 5,969,230 shares of our preferred stock are outstanding. COMMON STOCK VOTING RIGHTS. The holders of common stock are entitled to one vote per share on all matters submitted to a vote of our stockholders. The common stock does not have cumulative voting rights. DIVIDENDS. Subject to preferences that may be applicable to any preferred stock outstanding at the time, the holders of outstanding shares of common stock are entitled to receive ratably any dividends out of assets legally available therefor as our board of directors may from time to time determine. For a description of our dividend policy, please refer to the information in this prospectus under the heading "Dividend Policy." LIQUIDATION AND DISSOLUTION. Upon our liquidation, dissolution or winding up, holders of our common stock are entitled to share ratably in all assets remaining after payment of all liabilities and the liquidation preference of any then outstanding shares of preferred stock. NO PREEMPTIVE OR SIMILAR RIGHTS. Holders of our common stock have no right preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. Holders of shares of the common stock are not required to make additional capital contributions. All outstanding shares of common stock are fully paid and nonassessable. PREFERRED STOCK As of June 30, 2001, we have outstanding the following shares of preferred stock: o 2,998,408 shares of 14% series A redeemable exchangeable cumulative preferred stock, having an aggregate liquidation preference of $81.4 million, plus accrued and unpaid dividends; and o 2,970,822 shares of 12% series B junior redeemable cumulative preferred stock, having an aggregate liquidation preference of $83.4 million, plus accrued and unpaid dividends. We intend to redeem all of our outstanding shares of series A and series B preferred stock with a portion of the net proceeds from this offering. Our certificate of incorporation will provide that our board of directors will have the authority, without further action by the stockholders, to issue up to 5.0 million shares of preferred stock in one or more series. Our board of directors will be able to fix the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of this series. The issuance of preferred stock could adversely affect the voting power of holders of common stock, and the likelihood that holders of preferred stock will receive dividend payments and payments upon liquidation may Page 67 have the effect of delaying, deferring or preventing a change in control of us, which could depress the market price of our common stock. WARRANTS As of June 30, 2001, warrants to purchase 1,149,990 shares of common stock were outstanding. The warrants are exercisable at any time with an exercise price of $0.0007 per share and have no expiration date. REGISTRATION RIGHTS Upon completion of this offering, under our stockholders agreement, the holders of 17,524,335 shares of common stock and warrants to purchase 1,149,990 shares of common stock, or their transferees, will be entitled to register these shares under the Securities Act. Under the stockholders agreement, holders may demand that we file a registration statement under the Securities Act covering some or all of the holder's registrable securities. The stockholder agreement limits the number of demand registrations that we are required to make on behalf of the holders. In an underwritten offering, the managing underwriter has the right, subject to specified conditions, to limit the number of registrable securities. In addition, holders have "piggyback" registration rights. If we propose to register any of our equity securities under the Securities Act other than pursuant to demand registration right noted above or specified excluded registrations, holders may require us to include all or a portion of their registrable securities in the registration and in any related underwriting. In an underwritten offering, the managing underwriter, if any, has the right, subject to specified conditions, to limit the number of registrable securities. In general, we will bear all fees, costs and expenses of registrations, other than underwriting discounts and commissions. ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW We are subject to Section 203 of the Delaware General Corporation Law. Section 203 provides that specified persons who, together with affiliates and associates, own, or within three years did own, 15% or more of the outstanding voting stock of a corporation cannot engage in specified business combinations with the corporation for a period of three years after the date on which the person became an interested stockholder, unless: o prior to the date, our board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; o upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock of the corporation outstanding at the time the transaction commenced, excluding those shares owned by persons who are directors and also officers, and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or o on or subsequent to the date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. Section 203 defines "business combination" to include: Page 68 o any merger or consolidation involving the corporation and the interested stockholder; o any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation; o subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; or o the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. ANTI-TAKEOVER PROVISIONS OF OUR CHARTER On the closing of this offering, our bylaws will provide that candidates for director may be nominated only by the board of directors or by a stockholder who gives written notice to us no later than 90 days prior nor earlier than 120 days prior to the first anniversary of the last annual meeting of stockholders. The board of directors may consist of one or more members to be determined from time to time by the board of directors. The board of directors currently consists of six members divided into three different classes. As a result, only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective terms. Between stockholder meetings, the board of directors may appoint new directors to fill vacancies or newly created directorships. On the closing of this offering, our certificate of incorporation will require that any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by a consent in writing. Our certificate of incorporation also will provide that the authorized number of directors may be changed only by resolution of the board of directors. Delaware law and these charter provisions may have the effect of deterring hostile takeovers or delaying changes in control of our management, which could depress the market price of our common stock. INDEMNIFICATION OF DIRECTORS AND OFFICERS AND LIMITATION OF LIABILITY Our certificate of incorporation and bylaws allow us to eliminate the personal liability of our directors and to indemnify directors and officers to the fullest extent permitted by the Delaware General Corporation law. We also intend to enter into indemnity agreements with each of our directors and officers, which provide for mandatory indemnity of an officer or director made party to a "proceeding" by reason of the fact that he or she is or was a director of ours, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to our best interests. These agreements also obligate us to advance expenses to a director provided that he or she will repay advanced expenses in the event he or she is not entitled to indemnification. Directors are also entitled to partial indemnification, and indemnification for expenses incurred as a result of acting at our request as a director, officer or agent of an employee benefit plan or other partnership, corporation, joint venture, trust or other enterprise owned or controlled by us. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the above statutory provisions or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission that indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for our common stock is ______________. Page 69 LISTING We will apply to have our common stock approved for quotation on The Nasdaq Stock Market's National Market under the symbol "____." DESCRIPTION OF INDEBTEDNESS CREDIT FACILITY We, through our wholly owned subsidiary, have a $300.0 million credit facility, dated as of September 20, 2000, with the lenders party thereto, Goldman Sachs Credit Partners, L.P., as syndication agent, and Wells Fargo Bank, N.A., as administrative agent. STRUCTURE. The credit facility consists of a $50.0 million revolving facility, a $50.0 million term loan A facility and a $200.0 million term loan B facility. Under the revolving facility, up to $50.0 million may be used in connection with letters of credit, and the lesser of (1) $5.0 million, or (2) the aggregate unused amount of the revolving facility then in effect may be borrowed under a "swing line" facility on same-day notice to the lenders. As of the date of this prospectus, we have no borrowings under the revolving facility. MATURITY. We are required to repay the amounts borrowed under the term loan A facility in quarterly installments. Quarterly payments equal $250,000 per quarter in year one, $1.5 million per quarter in year two, $1.75 million per quarter in year three, $2 million per quarter in year four, $2.75 million per quarter in year five and $4.25 million per quarter in year six. The term loan A facility matures on September 20, 2006. We are required to repay the amounts borrowed under the term loan B facility in quarterly installments. Quarterly payments equal $625,000 per quarter in years one through six and $23.125 million per quarter in years seven and eight. The term loan B facility matures on September 20, 2008. The entire outstanding principal amount under the revolving facility is due on September 20, 2006. Mandatory prepayments under the term loan facilities are applied pro rata to each required quarterly payment, subject to a lender's ability to waive a term loan B facility payment and have it applied to other facilities. The term facilities and the revolving facility may be voluntarily prepaid in whole or in part without premium or penalty. Since September 20, 2000, quarterly payments have reduced the outstanding principal amount under the credit facility to $49.3 million for the term loan A facility and $198.1 million for the term loan B facility. GUARANTEES AND SECURITY. Our obligations under the credit facility are guaranteed by us and our wholly owned, consolidated subsidiaries. The borrowings under the credit facility and the subsidiary guarantees are secured by substantially all of our consolidated assets. In addition, borrowings under the credit facility are secured by a pledge of substantially all of the capital stock, or similar equity interests, of our wholly owned, consolidated subsidiaries. INTEREST RATE. In general, borrowings under the credit facility bear interest based, at our option, on either: o the base rate (as defined below) plus a margin ranging from 1.00% to 2.25% per annum for the term loan A facility and the revolving facility and a margin of 2.75% per annum for the term loan B facility; or o the adjusted eurodollar rate (as defined below) plus a margin ranging from 2.00% to 3.25% per annum for the term loan A facility and the revolving facility and a margin of 3.75% per annum for the term loan B facility. Page 70 The base rate is the higher of Wells Fargo's prime rate or the federal funds rate plus 0.5%. The adjusted eurodollar rate is defined as the rate per annum obtained by dividing (1) the rate of interest offered to Wells Fargo on the London interbank market by (2) a percentage equal to 100% minus the stated maximum rate of all reserve requirements applicable to any member bank of the Federal Reserve System in respect of "eurocurrency liabilities." Swing line borrowings bear interest at the base rate, plus a margin ranging from 1.00% to 2.25%. COVENANTS. The credit facility contains financial covenants that require us to satisfy, on a consolidated basis, specified quarterly financial tests, including: o a minimum consolidated interest expense coverage ratio; o a minimum fixed charge coverage ratio; o a maximum consolidated senior leverage ratio; and o a maximum consolidated total leverage ratio. The credit facility also contains a number of other customary covenants that, among other things, restrict our ability to: o dispose of assets; o incur additional debt; o prepay other debt, subject to specified exceptions, or amend specified debt instruments; o pay dividends; o create liens on assets; o make investments, loans or advances; o make acquisitions; o engage in mergers or consolidations; o change the business conducted by us; o engage in sale and leaseback transactions; o purchase shares of the outstanding common stock of our wholly owned subsidiary; o make capital expenditures or engage in transactions with affiliates; and o otherwise undertake various corporate activities. EVENTS OF DEFAULT. The credit facility also contains customary events of default, including defaults based on: o nonpayment of principal, interest or fees when due, subject to specified grace periods; o cross-defaults to other debt; Page 71 o breach of specified covenants; o material inaccuracy of representations and warranties; o specified other defaults under other credit documents; o events of bankruptcy and insolvency; o material judgments; o dissolution and liquidation; o specified occurrences relating to subordinated debt; o change in control; and o invalidity of any guaranty or security interest. CHANGE OF CONTROL. The change of control provision makes it an event of default, and permits the acceleration of the credit facility debt, in the event that: o specified persons, including Leonard Green & Partners, its affiliated co-investors and management investors, collectively cease to own at least 51% of the voting interests in our capital stock; o another person or group has acquired 35% or more of the voting interests in our capital stock or shall have obtained the power to elect a majority of our board of directors; o Leonard Green & Partners and its affiliated co-investors cease to own voting interests in our capital stock greater than any other person or group; o we cease to beneficially own and control 100% of the capital stock of our wholly owned subsidiary; o the majority of the seats on our board of directors cease to be occupied by persons who either were members of our board of directors as of September 20, 2000 or were nominated for election by our board of directors, a majority of whom were directors on September 20, 2000 or whose election or nomination was previously approved by a majority of such directors; or o a change of control occurs under our senior notes or the notes offered pursuant to the exchange offer. SENIOR SUBORDINATED NOTES On September 20, 2000, we, through our wholly owned subsidiary, issued $20.0 million principal amount of senior subordinated notes due 2010 pursuant to an indenture of the same date with Chase Manhattan Bank and Trust Company, National Association, as trustee. Interest on the senior subordinated notes is payable in cash, semi-annually in arrears, commencing March 31, 2001, at the rate of 13.5% per annum; provided, however, that if we fail timely to meet specific obligations to holders of the senior subordinated notes, interest on the senior subordinated notes may increase by up to 1% per annum. The senior subordinated notes are general unsecured and subordinated obligations, and are guaranteed by our wholly owned, consolidated subsidiaries, that mature on September 20, 2010. The Page 72 senior subordinated notes are redeemable at our option, in whole or in part, but each prepayment must relate to an aggregate principal amount of senior subordinated notes of at least $5.0 million, at any time on or after September 20, 2003, initially at 106.75% of their principal amount at maturity and declining in annual increments to 101.35% of such principal amount on and after September 20, 2009, in each case plus accrued interest. Additionally, up to 35% of the senior subordinated notes are redeemable at our option but each prepayment must relate to an aggregate principal amount of senior subordinated notes of at least $5.0 million, at any time prior to September 20, 2002 from the proceeds of an equity offering of our common stock at a price of 110% of the principal amount plus accrued interest. If the underwriters exercise their over-allotment option, we intend to use a portion of the net proceeds, to the extent available, to repurchase up to $7.0 million of the outstanding principal amount of the senior subordinated notes. The indenture contains a number of covenants, including a provision regarding a change of control. The provision defines a change of control event as (1) the sale, lease, transfer, conveyance or other disposition of substantially all of our assets and our subsidiaries to a person other than specified persons affiliated with Leonard Green & Partners, specified equity investors and management investors; (2) the adoption of a plan relating to our liquidation or dissolution or the liquidation or dissolution of our wholly owned subsidiary; (3) the consummation of any transaction as result of which, (x) prior to the senior subordinated notes being registered or exchanged for registered notes, (a) specified persons, including Leonard Green & Partners, its affiliated co-investors and management investors, collectively cease to own at least 51% of the voting interests in our capital stock, or (b) Leonard Green & Partners and its affiliates cease to own voting interests of at least 25% in our capital stock, or (y) we cease to own directly 100% of the outstanding equity of our wholly owned subsidiary or (z) any person or group other than specified persons affiliated with Leonard Green & Partners, specified equity investors and management investors have acquired beneficial ownership of 35% or more of the aggregate voting interest attributable to all of our outstanding capital stock; or (4) the first day on which a majority of our board of directors were not directors on September 20, 2000 or whose election or nomination was previously approved by a majority of such directors. In the event of a change of control event, or in the event of specified dispositions of assets by us or our subsidiaries, the proceeds of which are neither used to repay the senior credit facility, the senior subordinated notes or to acquire long term assets, our wholly owned subsidiary is required to offer to repurchase the senior subordinated notes at a purchase price equal to 101% (in the case of a specified change of control) or 100% (in the case of a specified disposition of assets) of the principal amount thereof, in each case plus accrued interest. The indenture governing the senior subordinated notes also contains covenants that restrict the ability of our wholly owned subsidiary and our other indirect wholly owned subsidiaries to: o incur additional debt; o incur specified liens on our assets; o pay dividends on stock or repurchase stock; o make investments; o engage in specified transactions with affiliates; o create or permit to exist specified dividend or payment restrictions affecting subsidiaries; o sell assets; o engage in specified sale/lease-back transactions; o sell all or substantially all of their assets or merge with or into other companies; and Page 73 o engage in business activities unrelated to activities engaged in at the original date of issuance of the senior subordinated notes. The indenture governing the senior subordinated notes also provides for various defaults, including failure to pay interest on the senior subordinated notes when due (after a specified grace period), failure to pay any principal on the senior subordinated notes when the same becomes due at maturity, upon redemption or otherwise, failure to observe or perform any other covenant or agreement in the indenture governing the senior subordinated notes where such failure continues for thirty (30) days after actual knowledge thereof by a senior officer, and failure to pay at final maturity or other default leading to actual acceleration with respect to other indebtedness having an aggregate principal amount of $7.5 million or more. SENIOR NOTES On September 20, 2000, we issued $100.0 million principal amount of senior notes due 2010 pursuant to an indenture of the same date with Chase Manhattan Bank and Trust Company, National Association, as trustee. Interest on the senior notes is payable semi-annually in arrears, commencing March 31, 2001, at the rate of 15.5% per annum; provided that on any semi-annual interest payment date prior to September 20, 2005, we have the option to pay all or any portion of the interest payable on said date by issuing additional senior notes in a principal amount equal to the interest we elect not to pay in cash on such date; and further provided, however, that if we fail timely to meet specified obligations to holders of the senior notes as set forth in an exchange and registration rights agreement dated as of September 20, 2000, interest on the senior notes may increase by up to 1% per annum. The senior notes are general unsecured and unsubordinated obligations that mature on September 20, 2010. We intend to use $35.0 million of the net proceeds of this offering to reduce the outstanding principal amount of the senior notes to $65.0 million, and, if the underwriters exercise their over-allotment option, any additional net proceeds will be used to repay up to an additional $6.0 million of the principal amount. The senior notes are redeemable at our option, in whole or in part, but each prepayment must relate to an aggregate principal amount of senior notes of at least $5.0 million, at any time on or after September 20, 2003, initially at 107.5% of their principal amount at maturity and declining in annual increments to 101.55% of such principal amount on and after September 20, 2009, in each case plus accrued interest. Additionally, up to 35% of the senior notes are redeemable at our option but each prepayment must relate to an aggregate principal amount of senior notes of at least $5.0 million, at any time prior to September 20, 2002 from the proceeds of an equity offering of our common stock at a price of 110% of the principal amount plus accrued interest. The indenture contains a number of covenants, including a provision regarding a change of control. The provision defines a change of control event as, (1) the sale, lease, transfer, conveyance or other disposition of substantially all of our assets and our subsidiaries to a person other than persons affiliated with Leonard Green & Partners, specified equity investors and management investors; (2) the adoption of a plan relating to our liquidation or dissolution or the liquidation or dissolution of our wholly owned subsidiary; (3) the consummation of any transaction as result of which, (x) prior to the senior notes being registered or exchanged for registered notes, (a) persons, including Leonard Green & Partners, its affiliated co-investors and management investors, collectively cease to own at least 51% of the voting interests in our capital stock, or (b) Leonard Green & Partners and its affiliates cease to own voting interests of at least 25% in our capital stock, or (y) we cease to own directly 100% of the outstanding equity of our wholly owned subsidiary or (z) any person or group other than persons affiliated with Leonard Green & Partners, specified equity investors and management investors have acquired beneficial ownership of 35% or more of the aggregate voting interest attributable to all our outstanding capital stock; or (4) the first day on which a majority of our board of directors were not directors on September 20, 2000 or whose election or nomination was previously approved by a majority of such directors. In the event of a change of control event, or in the event of specified dispositions of the assets by us or ours subsidiaries, the proceeds of which are neither used to repay the credit facility, the senior notes or to acquire long term assets, we are required to offer to repurchase the senior notes at a purchase price equal to 101% (in the case of a specified change of control) or 100% (in the case of a Page 74 specified disposition of assets) of the principal amount thereof, in each case plus accrued interest. The senior notes are also subject to partial mandatory redemption, without premium, on any interest payment date occurring after September 20, 2005, in an aggregate amount equal to the difference, if any, between (a) the aggregate amount which would be includable in the holders' gross income for federal income tax purposes with respect to the senior notes before such interest payment date and (b) the sum of (1) the aggregate amount of interest paid in cash under the senior notes before such interest payment date and (2) the product of (x) the issue price of all of the senior notes (as determined under United States Treasury Regulations Sections 1.1273-2(a)) multiplied by (y) 17.25%. Any such partial mandatory redemption has been expressly subordinated in time and right of payment by the holders of the senior notes to the prior payment in full of all obligations under the credit facility, as it may be supplemented, replaced, restructured, refinanced or otherwise modified from time to time. The indenture governing the senior notes also contains covenants that restrict the ability of us and our subsidiaries to: o incur additional debt; o incur specified liens on our assets; o pay dividends on stock or repurchase stock; o make investments; o engage in specified transactions with affiliates; o create or permit to exist specified dividend or payment restrictions affecting subsidiaries; o sell assets; o engage in specified sale/lease-back transactions; o sell all or substantially all of their assets or merge with or into other companies; and o engage in business activities unrelated to activities engaged in at the original date of issuance of the senior notes. The indenture governing the senior notes also provides for various defaults, including failure to pay interest on the senior notes when due after a specified grace period, failure to pay any principal on the senior notes when the same becomes due at maturity, upon redemption or otherwise, failure to observe or perform any other covenant or agreement in the indenture governing the senior notes where such failure continues for thirty (30) days after actual knowledge thereof by a senior officer, and failure to pay at final maturity or other default leading to actual acceleration with respect to other indebtedness having an aggregate principal amount of $7.5 million or more. Page 75 SHARES ELIGIBLE FOR FUTURE SALE Prior to our September 2000 recapitalization, our common stock was listed on The Nasdaq Stock Market's National Market. In connection with the recapitalization, we terminated our listing, and there is currently no public market for our common stock. We can make no prediction as to the effect, if any, that market sales of shares of common stock or the availability of shares of common stock for sale will have on the market price prevailing time to time. The sale of substantial amounts of common stock in the public market could adversely affect the prevailing market price of the common stock and our ability to raise equity capital in the future. SALE OF RESTRICTED SECURITIES Upon completion of this offering, we will have outstanding an aggregate of _______ shares of common stock, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options and warrants to purchase common stock. Of these shares, all of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless these shares are purchased by affiliates. The remaining _________ shares of common stock held by existing stockholders are restricted securities. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration described below under Rules 144, 144(k) or 701 under the Securities Act. As a result of the contractual restrictions described below and the provisions of Rules 144, 144(k) and 701, the restricted shares will be available for sale in the public market as follows: o __________ shares will be eligible for immediate sale on the date of this prospectus; o __________ shares will be eligible for sale 90 days from the date of this prospectus; o __________ shares will be eligible for sale upon the expiration of the lock-up agreements, described below, 180 days after the date of this prospectus; o __________ shares will be eligible for sale upon the exercise of vested options or warrants 180 days after the date of this prospectus; and o __________ shares will be eligible for sale at various times more than 180 days after the date of this prospectus. LOCK-UP AGREEMENTS Our directors and officers and all of our security holders have signed lock-up agreements under which they agreed not to sell, dispose of, loan, pledge or grant any rights to any shares of common stock or any securities convertible into or exchangeable or exercisable for any shares of common stock without the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this prospectus. Credit Suisse First Boston Corporation may choose to release some of these shares from these restrictions before the expiration of the 180-day period at any time without notice. RULE 144 In general, under Rule 144 as currently in effect, commencing 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year, including a person who is an affiliate, is entitled to sell within any three-month period a number of shares that does not exceed the greater of: Page 76 o 1% of the number of shares of our common stock then outstanding; or o the average weekly trading volume of our common stock on The Nasdaq Stock Market's National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale, subject to restrictions specified in Rule 144. Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us. Under Rule 144(k), a person who has not been one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell these shares without regard to the volume, manner of sale or other limitations contained in Rule 144. These shares are subject to the lock-up agreements and will be available for sale in the open market beginning 180 days after the date of this prospectus. RULE 701 In general, under Rule 701 of the Securities Act, any of our employees, consultants or advisors who purchase shares from us in connection with a compensatory stock plan or contract is eligible to resell the shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with various restrictions, including the holding period, contained in Rule 144 so long as they are not an affiliate of ours. If they are an affiliate, they are eligible to resell the shares 90 days after the effective date of this offering in reliance on Rule 144 but without compliance with the holding period contained in Rule 144. These shares are subject to the lock-up agreements and will be available for sale in the open market beginning 180 days after the date of this prospectus. STOCK OPTIONS Immediately after this offering, we intend to file a registration statement under the Securities Act covering the shares of common stock reserved for issuance under our 1996 Stock Incentive Plan and our 2001 Stock Incentive Plan, including 1,325,670 shares of common stock underlying outstanding options. These registration statements are expected to be filed and become effective as soon as practicable after the closing of this offering. Accordingly, shares registered under the registration statements will, subject to any vesting provisions and Rule 144 volume limitations applicable to affiliates, be available for sale in the open market beginning 180 days after the date of this prospectus. REGISTRATION RIGHTS Some of our existing stockholders are parties to a stockholders agreement with us that provides for registration rights to cause us to register under the Securities Act all or part of the shares of our common stock. Registration of the sale of these shares of our common stock would permit their sale into the market immediately. If our existing stockholders sell a large number of shares, the market price of our common stock could decline. These holders of registration rights are subject to lock-up periods of 180 days following the date of this prospectus. Please refer to the information in the prospectus under the heading "Description of Capital Stock - Registration Rights" for a more detailed discussion of these registration rights. Page 77 UNDERWRITING Under the terms and subject to the conditions contained in an underwriting agreement dated ___________, 2001, we have agreed to sell to the underwriters named below, for whom Credit Suisse First Boston Corporation, Goldman, Sachs & Co., Banc of America Securities LLC, Tucker Anthony Sutro Incorporated, and Wells Fargo Van Kasper, LLC are acting as representatives, the following respective numbers of shares of common stock: Number UNDERWRITER of Shares ----------- ----------- Credit Suisse First Boston Corporation............................ Goldman, Sachs & Co............................................... Banc of America Securities LLC.................................... Tucker Anthony Sutro Incorporated................................. Wells Fargo Van Kasper, LLC....................................... ----------- Total....................................................... =========== The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in the offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated. We have granted to the underwriters a 30-day option to purchase on a pro rata basis up to additional shares at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of common stock. The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a concession of $ per share. The underwriters and selling group members may allow a discount of $ per share on sales to other broker/dealers. After the initial public offering, the representatives may change the public offering price and concession and discount to broker/dealers. The following table summarizes the compensation and estimated expenses we will pay:
PER SHARE TOTAL --------- ----- Without With Without With OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT -------------- -------------- -------------- -------------- Underwriting Discounts and Commissions paid by us....... $ $ $ $ Expenses payable by us....... $ $ $ $
The representatives have informed us that the underwriters do not expect discretionary sales to exceed 5% of the shares of common stock being offered. The offering is being conducted in accordance with the applicable provisions of Rules 2720 and 2710(c)(8) of the National Association of Securities Dealers, Inc. Conduct Rules because affiliates of Goldman, Sachs & Co., one of the underwriters, own more than 10% of our subordinated debt and Page 78 because these affiliates will receive more than 10% of the net proceeds from this offering. Rules 2720 and 2710(c)(8) require that the initial public offering price of the shares of common stock not be higher than that recommended by a "qualified independent underwriter" meeting specified standards. Accordingly, Credit Suisse First Boston Corporation is assuming the responsibilities of acting as the qualified independent underwriter in pricing the offering and conducting the due diligence. The initial public offering price of the shares of common stock will be no higher than the price recommended by Credit Suisse First Boston Corporation. We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this prospectus. Our officers and directors and the holders of all of our common stock have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this prospectus. The underwriters have reserved for sale at the initial public offering price up to _______ shares of the common stock for employees, directors and other persons associated with us who have expressed an interest in purchasing common stock in the offering. The number of shares available for sale to the general public in the offering will be reduced to the extent these persons purchase the reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares. We have agreed to indemnify the underwriters against liabilities under the Securities Act, or contribute to payments that the underwriters may be required to make in that respect. We will apply to have our common stock approved for quotation on The Nasdaq Stock Market's National Market. As of June 30, 2001, GS Mezzanine Partners II, L.P. and GS Mezzanine II Offshore, L.P., affiliates of Goldman, Sachs & Co., held an aggregate of 121,000 shares of Series A preferred stock and 122,123 shares of Series B junior preferred stock; an aggregate principal amount of $76.7 million of our senior notes; and an aggregate principal amount of $14.2 million of our senior subordinated notes, and warrants to purchase 814,575 shares of our common stock at an exercise price of $0.0007 per share. Melina Higgins, one of our directors, is the Chief Financial Officer of GS Mezzanine Partners II, L.P. and GS Mezzanine II Offshore, L.P. Some of the representatives or their affiliates have provided investment banking and advisory services for us from time to time for which they have received customary fees and reimbursements of expenses and may in the future provide additional services. In connection with our recapitalization, an affiliate of Goldman, Sachs & Co. acted as sole lead arranger and sole syndication agent for our $300.0 million credit facility and received customary fees in connection therewith. In addition, Credit Suisse First Boston Corporation provided advisory services in connection with our recapitalization and received customary fees for those services. Page 79 Prior to this offering, there has been no public trading market for the common stock. The initial public offering price for the common stock will be determined by negotiation between us and the representatives. The principal factors to be considered in determining the initial public offering price include: o the information included in this prospectus and otherwise available to the representatives; o the history and the prospects of the industry in which we compete; o the ability of our management; o our past and present operations; o our prospects for future earnings; o the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies; o market conditions for initial public offerings; and o the general condition of the securities markets at the time of this offering. We cannot assure you that the initial public offering price will correspond to the price at which our common stock will trade in the public market subsequent to the offering or that an active trading market for our common stock will develop and continue after the offering. In connection with the offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Securities Exchange Act of 1934. o Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. o Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by either exercising their over-allotment option and/or purchasing shares in the open market. o Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. Page 80 o Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on The Nasdaq Stock Market's National Market or otherwise and, if commenced, may be discontinued at any time. A prospectus in electronic format may be made available on the web sites maintained by one or more of the underwriters participating in this offering. The representatives may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters that will make internet distributions on the same basis as other allocations. Credit Suisse First Boston Corporation may effect an on-line distribution through its affiliate, CSFBDIRECT Inc., an on-line broker/dealer, as a selling group member. Page 81 NOTICE TO CANADIAN RESIDENTS RESALE RESTRICTIONS The distribution of the common stock in Canada is being made only on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are made. Any resale of the common stock in Canada must be made under applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the common stock. REPRESENTATIONS OF PURCHASERS By purchasing common stock in Canada and accepting a purchase confirmation a purchaser is representing to us and the dealer from whom the purchase confirmation is received that: o the purchaser is entitled under applicable provincial securities laws to purchase the common stock without the benefit of a prospectus qualified under those securities laws, o where required by law, that the purchaser is purchasing as principal and not as agent, and o the purchaser has reviewed the text above under "Resale Restrictions". RIGHTS OF ACTION (ONTARIO PURCHASERS) The securities being offered are those of a foreign issuer and Ontario purchasers will not receive the contractual right of action prescribed by Ontario securities law. As a result, Ontario purchasers must rely on other remedies that may be available, including common law rights of action for damages or rescission or rights of action under the civil liability provisions of the U.S. federal securities laws. ENFORCEMENT OF LEGAL RIGHTS All of the issuer's directors and officers as well as the experts named herein may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon the issuer or such persons. All or a substantial portion of the assets of the issuer and such persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against the issuer or such persons in Canada or to enforce a judgment obtained in Canadian courts against such issuer or persons outside of Canada. NOTICE TO BRITISH COLUMBIA RESIDENTS A purchaser of common stock to whom the SECURITIES ACT (British Columbia) applies is advised that the purchaser is required to file with the British Columbia Securities Commission a report within ten days of the sale of any common stock acquired by the purchaser in this offering. The report must be in the form attached to British Columbia Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained from us. Only one report must be filed for common stock acquired on the same date and under the same prospectus exemption. TAXATION AND ELIGIBILITY FOR INVESTMENT Canadian purchasers of common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the common stock in their particular circumstances and about the eligibility of the common stock for investment by the purchaser under relevant Canadian legislation. Page 82 LEGAL MATTERS The validity of the common stock offered by this prospectus will be passed upon for us by our legal counsel, Akin, Gump, Strauss, Hauer & Feld, LLP, Los Angeles, California. Various legal matters in connection with this offering will be passed on for the underwriters by Skadden, Arps, Slate, Meagher & Flom, LLP, Los Angeles, California. EXPERTS The audited financial statements and schedules included in this prospectus and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. WHERE YOU CAN FIND MORE INFORMATION We have filed a registration statement on Form S-1 with the Commission regarding this offering. The registration statement of which this prospectus is a part contains additional relevant information about us and our capital stock and you should refer to the registration statement and its exhibits to read that information. References in this prospectus to any of our contracts or other documents are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract or document. You may read and copy the registration statement, the related exhibits and the other material we file with the Commission and the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington D.C. 20549, and at the Commission's regional offices at Citicorp Center, Suite 1400, 500 W. Madison Street, Chicago, IL 60661 and 7 World Trade Center, Suite 1300, New York, NY 10048. You can also request copies of those documents, upon payment of a duplicating fee, by writing to the Commission. Please call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The Commission also maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file with the Commission. The site's address is www.sec.gov. You may also request a copy of these filing, at no cost, by writing or telephoning us as follows: 12401 West Olympic Boulevard, Los Angeles, California 90064-1022, Attention: Chief Financial Officer, or 310-571-6500. As a result of this offering, we will become subject to the information and reporting requirements of the Securities Exchange Act and, in accordance with those requirements, will file periodic reports, proxy statements and other information with the SEC. We intend to furnish our stockholders with annual reports containing financial statements audited by our independent accountants. Page 83 [LOGO] VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ---------------- PAGE Report of Independent Public Accountants....................................F-2 Consolidated Balance Sheets as of December 31, 2000 and 1999................F-3 Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998............................................F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998...............................F-5 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2000, 1999 and 1998...............................F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998............................................F-7 Notes to Consolidated Financial Statements..................................F-9 Condensed Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000 (unaudited)...............................................F-31 Condensed Consolidated Statements of Operations for the six months ended June 30, 2001 and 2000 (unaudited)..........................................F-32 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000 (unaudited)..........................................F-33 Notes to Condensed Consolidated Financial Statements - June 30, 2001 (unaudited).................................................................F-34 Page F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Veterinary Centers of America, Inc.: We have audited the accompanying consolidated balance sheets of Veterinary Centers of America, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity, comprehensive income, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Veterinary Centers of America, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Los Angeles, California March 28, 2001 Page F-2
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2000 AND 1999 (IN THOUSANDS, EXCEPT PAR VALUE) Assets 2000 1999 ------------ ---------- Current Assets: Cash and cash equivalents............................................. $ 10,519 $ 10,620 Marketable securities................................................. -- 5,313 Trade accounts receivable, less allowance for uncollectible accounts of $4,110 and $7,162 at December 31, 2000 and 1999, respectively................................................ 15,450 15,276 Inventory............................................................. 5,773 5,455 Prepaid expense and other............................................. 3,424 4,544 Deferred income taxes................................................. 4,655 4,213 Prepaid income taxes.................................................. 9,402 3,986 ----------- ---------- Total current assets............................................... 49,223 49,407 Property and equipment, net............................................... 86,972 70,336 Other Assets: Goodwill, net......................................................... 310,185 291,286 Covenants not to compete, net......................................... 19,549 4,450 Notes receivable, net................................................. 2,178 1,891 Investment in VPI..................................................... -- 5,000 Deferred financing costs, net......................................... 13,373 1,515 Other................................................................. 1,590 2,615 ----------- ---------- $ 483,070 $ 426,500 =========== ========== Liabilities and Stockholders' Equity (Deficit) Current Liabilities: Current portion of long-term obligations................................ $ 5,756 $ 21,901 Accounts payable........................................................ 8,393 8,715 Accrued payroll and related liabilities................................. 8,335 7,258 Accrued recapitalization costs.......................................... 4,014 -- Other accrued liabilities............................................... 13,228 7,896 ----------- ---------- Total current liabilities............................................ 39,726 45,770 Long-term obligations, less current portion................................. 356,993 139,634 Deferred income taxes....................................................... 8,484 6,655 Other liabilities........................................................... 1,500 -- Minority interest........................................................... 3,610 3,212 Series A Redeemable Preferred Stock......................................... 77,875 -- Series B Redeemable Preferred Stock......................................... 76,747 -- Stockholders' Equity (Deficit): Common stock, par value $.01 as of December 31, 2000, 24,000 shares authorized as of December 31, 2000, 17,524 and 325,620 outstanding as of December 31, 2000 and 1999, respectively................................................ 175 3,256 Additional paid-in capital............................................... 18,498 210,492 Retained earnings (accumulated deficit).................................. (100,020) 25,737 Accumulated comprehensive loss - unrealized loss on investment........... -- (361) Notes receivable from stockholders....................................... (518) (654) Less: cost of common stock held in treasury............................. -- (7,241) ----------- ---------- Total stockholders' equity (deficit).................................... (81,865) 231,229 ----------- ---------- $ 483,070 $ 426,500 =========== ==========
The accompanying notes are an integral part of these consolidated balance sheets. Page F-3
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2000 1999 1998 ---------- ---------- ---------- Revenue............................................ $ 354,687 $ 320,560 $ 281,039 Direct costs....................................... 254,787 232,493 209,380 ---------- ---------- ---------- Gross profit..................................... 99,900 88,067 71,659 Selling, general and administrative................ 26,994 23,622 19,693 Depreciation and amortization...................... 18,878 16,463 13,132 Year 2000 remediation expense...................... -- 2,839 -- Reversal of restructuring charges.................. -- (1,873) -- Recapitalization costs............................. 34,823 -- -- ---------- ---------- ---------- Operating income................................. 19,205 47,016 38,834 Interest income.................................... 850 1,194 2,357 Interest expense................................... 20,742 10,643 11,189 Other (income) expense............................. 1,800 -- -- ---------- ---------- ---------- Income (loss) before minority interest, provision for income taxes and extraordinary item.............................. (2,487) 37,567 30,002 Minority interest in income of subsidiaries........ 1,066 850 780 ---------- ---------- ---------- Income (loss) before provision for income taxes and extraordinary item.................... (3,553) 36,717 29,222 Provision for income taxes......................... 2,199 16,462 12,954 Income tax adjustment.............................. -- (2,102) -- ---------- ---------- ---------- Income (loss) before extraordinary item.......... (5,752) 22,357 16,268 Extraordinary loss on early extinguishment of debt (net of income tax benefit of $1,845)....... 2,659 -- -- ---------- ---------- ---------- Net income (loss)................................ $ (8,411) $ 22,357 $ 16,268 ========== ========== ========== Increase in carrying amount of Redeemable Preferred Stock.................................. 5,391 -- -- ---------- ---------- ---------- Net income (loss) available to common stockholders................................ $ (13,802) $ 22,357 $ 16,268 ========== ========== ========== Basic earnings (loss) per common share: Income (loss) before extraordinary item....... $ (0.05) $ 0.07 $ 0.05 Extraordinary loss on early extinguishment of debt..................................... (0.01) -- -- ---------- ---------- ---------- Earnings (loss) per common share.............. $ (0.06) $ 0.07 $ 0.05 ========== ========== ========== Diluted earnings (loss) per common share: Income (loss) before extraordinary item....... $ (0.05) $ 0.07 $ 0.05 Extraordinary loss on early extinguishment of debt..................................... (0.01) -- -- ---------- ---------- ---------- Earnings (loss) per common share.............. $ (0.06) $ 0.07 $ 0.05 ========== ========== ========== Shares used for computing basic earnings (loss) per share................................. 234,055 315,945 305,250 ========== ========== ========== Shares used for computing diluted earnings (loss) per share................................... 234,055 329,775 329,100 ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. Page F-4
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN THOUSANDS) NOTES COMMON STOCK ADDITIONAL TREASURY SHARES RECEIVABLE RETAINED ------------------ PAID-IN ------------------- FROM EARNINGS SHARES AMOUNT CAPITAL SHARES AMOUNT STOCKHOLDERS (DEFICIT) --------- -------- ----------- -------- --------- ------------ ---------- Balances, December 31, 1997............ 304,800 $ 3,048 $ 193,717 (3,405) $ (2,480) $ (546) $ (12,888) Net income........................... -- -- -- -- -- -- 16,268 Exercise of stock options............ 2,910 29 2,008 -- -- -- -- Interest on notes.................... -- -- -- -- -- (71) -- Business acquisitions................ 2,610 26 3,121 -- -- -- -- Conversion of convertible debt....... 180 2 83 -- -- -- -- Settlement of guaranteed purchase price contingently payable in cash or common stock............... 315 3 (3) -- -- -- -- Restricted stock bonus............... 1,425 14 822 -- -- -- -- --------- -------- ---------- -------- --------- --------- ----------- Balances, December 31, 1998............ 312,240 3,122 199,748 (3,405) (2,480) (617) 3,380 Net income........................... -- -- -- -- -- -- 22,357 Exercise of stock options............ 750 8 527 -- -- -- -- Exercise of warrants................. 45 -- -- -- -- -- -- Interest on notes.................... -- -- -- -- -- (37) -- Business acquisitions................ 8,820 88 8,740 -- -- -- -- Conversion of convertible debt....... 150 2 72 -- -- -- -- Restricted stock bonus............... 3,615 36 1,405 -- -- -- -- Purchase of treasury shares.......... -- -- -- (5,895) (4,761) -- -- --------- -------- ---------- -------- --------- --------- ----------- Balances, December 31, 1999............ 325,620 3,256 210,492 (9,300) (7,241) (654) 25,737 Net loss............................. -- -- -- -- -- -- (8,411) Exercise of stock options............ 1,830 18 905 -- -- -- -- Restricted stock bonus............... 3,060 31 1,071 -- -- -- -- Interest on notes.................... -- -- -- -- -- (34) -- Purchase of treasury shares.......... -- -- -- (3,315) (3,323) -- -- Retirement of treasury shares........ -- -- -- 12,615 10,564 -- -- Issuance of common stock............. 14,865 149 14,716 -- -- (518) -- Issuance of warrants................. -- -- 1,149 -- -- -- -- Write-off of notes as part of Recapitalization -- -- -- -- -- 688 -- Increase in carrying amount of Redeemable Preferred Stock......... -- -- -- -- -- -- (5,391) Repurchase and retirement of common stock....................... (327,851) (3,279) (209,835) -- -- -- (111,955) --------- -------- ---------- -------- --------- --------- ----------- Balances, December 31, 2000............ 17,524 $ 175 $ 18,498 -- $ -- $ (518) $ (100,020) ========= ======== ========== ======== ========= ========= ===========
The accompanying notes are an integral part of these consolidated financial statements. Page F-5
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN THOUSANDS) 2000 1999 1998 ------------ ------------ ----------- Net income (loss)......................................... $ (8,411) $ 22,357 $ 16,268 Other comprehensive income: Unrealized loss on investments........................ (219) (218) (870) Recognized loss on investments........................ 580 325 402 ------------ ------------ ----------- Other comprehensive income (loss)......................... 361 107 (468) ------------ ------------ ----------- Net comprehensive income (loss)........................... $ (8,050) $ 22,464 $ 15,800 ============ ============ =========== Accumulated comprehensive loss at beginning of year....... $ (361) $ (468) $ -- Other comprehensive income (loss)......................... 361 107 (468) ------------ ------------ ----------- Accumulated comprehensive loss at end of year............. $ -- $ (361) $ (468) ============ ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. Page F-6
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN THOUSANDS) 2000 1999 1998 ----------- ---------- ---------- Cash Flows from Operating Activities: Net income (loss) ........................................... $ (8,411) $ 22,357 $ 16,268 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 19,714 16,704 13,563 Provision for uncollectible accounts.................... 3,105 2,515 2,898 Extraordinary loss on early extinguishment of debt...... 4,504 -- -- Recapitalization costs.................................. 34,823 -- -- Interest paid in kind on senior subordinated notes...... 4,306 -- -- Gain on sale of investment in VPI....................... (3,200) -- -- Loss recognized on investment in Zoasis................. 5,000 -- -- Minority interest in income of subsidiaries............. 1,066 850 780 Distributions to minority interest partners............. (1,400) (926) (627) Increase in accounts receivable......................... (3,362) (5,535) (3,749) Increase in inventory................................... (167) (347) (242) Increase (decrease) in accounts payable and accrued liabilities................................... 5,932 (1,383) (4,872) Decrease (increase) in prepaid income taxes............. (5,416) 1,054 594 Decrease (increase) in prepaid expense and other........ 2,173 (414) (1,061) Increase in deferred income tax asset................... (442) (102) (1,043) Increase in deferred income tax liability............... 1,829 3,694 4,614 ---------- ---------- --------- Net cash provided by operating activities.................... 60,054 38,467 27,123 ---------- ---------- --------- Cash Flows from Investing Activities: Business acquisitions, net of cash acquired.................. (18,183) (16,079) (17,108) Real estate acquired in connection with business acquisitions............................................... (1,800) (4,241) (4,270) Property and equipment additions, net........................ (22,555) (21,803) (11,678) Investments in marketable securities......................... (129,992) (58,258) (44,902) Proceeds from sales or maturities of marketable securities... 135,666 86,410 62,447 Payment for covenants not to compete......................... (15,630) -- -- Investment in VPI............................................ -- -- (4,000) Net proceeds from sale of investment in VPI.................. 8,200 -- -- Investment in Zoasis......................................... (5,000) -- -- Other........................................................ 1,615 295 37 ---------- ---------- --------- Net cash used in investing activities........................ (47,679) (13,676) (19,474) ----------- ---------- --------- Cash Flows from Financing Activities: Repayment of long-term debt.................................. (172,854) (18,922) (20,591) Proceeds from the issuance of long-term debt................. 356,670 -- -- Payment of deferred financing costs.......................... (13,958) -- -- Proceeds from issuance of common stock under stock option plans......................................... 923 535 2,037 Proceeds from issuance of preferred stock.................... 149,231 -- -- Proceeds from issuance of common stock....................... 14,350 -- -- Proceeds from issuance of stock warrants..................... 1,149 -- -- Repurchase of common stock................................... (314,508) -- -- Purchase of treasury stock................................... (3,323) (4,761) -- Payments for recapitalization expense........................ (30,156) -- -- ----------- ---------- --------- Net cash used in financing activities........................ (12,476) (23,148) (18,554) ----------- ---------- --------- Increase (Decrease) in Cash and Cash Equivalents............... (101) 1,643 (10,905) Cash and Cash Equivalents at beginning of year................. 10,620 8,977 19,882 ----------- ---------- --------- Cash and Cash Equivalents at end of year....................... $ 10,519 $ 10,620 $ 8,977 =========== ========== =========
The accompanying notes are an integral part of these consolidated financial statements. Page F-7
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN THOUSANDS) 2000 1999 1998 ---------- ---------- ---------- Supplemental Disclosures of Cash Flow Information: Interest paid............................................... $ 15,237 $ 10,517 $ 11,301 Income taxes paid........................................... 4,337 9,603 10,944 Supplemental Schedule of Noncash Investing and Financing Activities: In connection with acquisitions, assets acquired and liabilities assumed were as follows: Fair value of assets acquired.............................. $ 29,616 $ 53,209 $ 30,740 Less consideration given: Cash paid and acquisition costs.......................... (18,230) (19,497) (20,255) Cash paid in settlement of assumed liabilities........... (1,262) (517) (812) Common stock issued...................................... -- (8,828) (3,100) ---------- ---------- ---------- Liabilities assumed including notes payable issued......... $ 10,124 $ 24,367 $ 6,573 ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. Page F-8 VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 1. THE COMPANY Based in Los Angeles, California, Veterinary Centers of America, Inc. ("VCA"), a Delaware corporation, is an animal health care services company with positions in two core businesses, animal hospitals ("Animal Hospitals") and veterinary diagnostic laboratories ("Laboratories"). In 2000, the Company established a new legal structure, comprised of a holding company and an operating company. VCA is the holding company ("Holding Company"). Vicar Operating, Inc. ("Operating Company") is wholly-owned by the Holding Company and owns the capital stock of all of the Company's subsidiaries. Collectively, the Holding Company and the Operating Company are referred to as VCA or the Company. Animal Hospitals offer a full range of general medical and surgical services for companion animals. Animal Hospitals treat diseases and injuries, provide pharmaceutical products and perform a variety of pet wellness programs, including routine vaccinations, health examinations, spaying, neutering and dental care. The Company operates a full-service, veterinary diagnostic laboratory network serving all 50 states. The laboratory network provides sophisticated testing and consulting services used by veterinarians in the detection, diagnosis, evaluation, monitoring, treatment and prevention of diseases and other conditions affecting animals. The Company does not conduct experiments on animals and is not engaged in animal research. At December 31, 2000, the Company owned or operated 209 animal hospitals throughout 30 states, as follows:
California 45 Delaware 4 New York (a) 24 Connecticut 3 Florida 18 New Mexico 3 Illinois 15 Colorado 2 Michigan 12 North Carolina (a) 2 Pennsylvania 10 Utah 2 Maryland 9 Alabama (a) 1 Texas (a) 9 Arizona 1 New Jersey (a) 8 Georgia 1 Indiana 7 Hawaii 1 Massachusetts 7 Louisiana (a) 1 Nevada 6 Missouri 1 Virginia 5 Nebraska (a) 1 Ohio (a) 5 South Carolina 1 Alaska 4 West Virginia (a) 1 (a) states where the Company manages animal hospitals under long-term management agreements.
Page F-9 At December 31, 2000, the Company operated 15 full-service laboratories. Our laboratory network includes primary hubs that are open 24 hours per day and offer a full testing menu, secondary laboratories, that service large metropolitan areas, are open 24 hours per day and offer a wide testing menu and nine STAT laboratories that service other locations with demand sufficient to warrant nearby laboratory facilities and are open during daytime hours.
PRIMARY HUBS SECONDARY HUBS STAT LABORATORIES ----------------- -------------- ----------------- California 1 Arizona 1 California 1 New York 1 Georgia 1 Colorado 1 Illinois 1 Florida 1 Tennessee 1 Hawaii 1 Michigan 1 Oregon 1 Texas 2 Washington 1 ---- ---- ---- Totals 2 4 9 ==== ==== ====
The Company was formed in 1986 and during the 1990s, established a position in the veterinary diagnostic laboratory and animal hospital markets through both internal growth and acquisitions. By 1997, the Company had built a laboratory network of 12 laboratories servicing animal hospitals in all 50 states and operated acquisitions for a total of 160 animal hospitals. On September 20, 2000, the Company completed a recapitalization transaction (the "Recapitalization") with certain investors who are affiliated with Leonard Green & Partners, L.P. The Company purchased the majority of its outstanding shares of common stock for $15.00 per share for a total consideration of $314.5 million, and such shares were subsequently retired. The Company then issued 14,350,005 new common shares to certain investors in exchange for an 80% controlling interest in the Company. An additional 517,995 shares of common stock were issued to certain members of management. In connection with the Recapitalization, the Company also authorized and issued preferred stock for which it received approximately $149.2 million and entered into various debt agreements through which it received approximately $356.7 million in cash. The Recapitalization did not result in a change in the historical cost basis of the Company's assets and liabilities. The Company incurred the following costs associated with the Recapitalization: $4.5 million related to the early extinguishment of existing debt, $13.9 million related to deferred financing costs on new debt, $15.6 million paid to certain shareholders who are members of management for covenants not to compete, and $34.8 million for professional fees and other costs. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and all those majority-owned subsidiaries where the Company has control. Significant intercompany transactions and balances have been eliminated. The Company provides management services to certain veterinary medical groups in states with laws that prohibit business corporations from providing veterinary services through the direct employment of veterinarians. As of December 31, 2000, the Company operated in nine of these states. In these states, instead of owning an animal hospital, the Company provides management services to veterinary medical groups. The Company provides management services pursuant to long-term management agreements (the "Management Agreements") with the veterinary medical groups, ranging from 10 to 40 years with non-binding renewal options, where allowable. Pursuant to the Management Agreements, the veterinary medical groups are each solely responsible for all aspects Page F-10 of the practice of veterinary medicine, as defined by their respective state. The Company is responsible for providing the following services: o availability of all facilities and equipment o day-to-day financial and administrative supervision and management o maintenance of patient records o recruitment of veterinary and hospitals staff o marketing o malpractice and general insurance The Company does not consolidate the operations of the veterinary medical groups since it has no control over the practice of veterinary medicine at these hospitals. As compensation for the Company's services, it receives management fees which are included in revenue and were $31.1 million, $30.2 million and $19.3 million for the years ended December 31, 2000, 1999 and 1998, respectively. B. CASH AND CASH EQUIVALENTS For purposes of the balance sheets and statements of cash flows, the Company considers only highly liquid investments to be cash equivalents. Cash and cash equivalents at December 31 consisted of (in thousands):
2000 1999 -------- -------- Cash............................. $ 3,443 $ 8,160 Money market funds............... 7,076 2,460 -------- -------- $10,519 $10,620 ======== ========
C. MARKETABLE SECURITIES During the year ending December 31, 2000, the Company realized a loss on the sale of an investment of $1.3 million; however, the Company recorded unrealized losses of $727,000 on this investment in years prior to 2000. D. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost. Equipment held under capital leases is recorded at the lower of the present value of the minimum lease payments or the fair value of the equipment at the beginning of the lease term. Depreciation and amortization are provided for on the straight-line method over the following estimated useful lives: Buildings and improvements............. 5 to 30 years Leasehold improvements................. Lesser of lease term or 15 years Furniture and equipment................ 5 to 7 years Property held under capital leases..... 5 to 30 years Page F-11 Property and equipment at December 31, consisted of (in thousands):
2000 1999 ---------- --------- Land............................................. $ 19,788 $ 14,423 Building and improvements........................ 33,920 24,615 Leasehold improvements........................... 17,565 13,428 Furniture and equipment.......................... 43,771 35,206 Equipment held under capital leases.............. 1,533 1,552 Construction in progress......................... 1,293 4,479 ---------- --------- Total fixed assets............................... 117,870 93,703 Less - Accumulated depreciation and amortization. (30,898) (23,367) ---------- --------- $ 86,972 $ 70,336 ========== =========
Accumulated depreciation on equipment held under capital leases amounted to $1.3 million and $1.2 million at December 31, 2000 and 1999, respectively. E. GOODWILL Goodwill relating to acquisitions represents the purchase price paid and liabilities assumed in excess of the fair market value of net assets acquired. Goodwill is amortized on a straight-line basis over the expected period to be benefited, not exceeding 40 years. The Company continually evaluates whether events, circumstances or net losses on the entity level have occurred that indicate the remaining estimated useful life of goodwill may warrant revision or that the remaining balance of goodwill may not be recoverable. When factors indicate that goodwill should be evaluated for possible impairment, the Company uses an estimate of the related facility's undiscounted, tax adjusted net income over the remaining life of the goodwill to measure whether the goodwill is recoverable. If it is determined that goodwill on a given entity is partially or totally unrecoverable, losses will be recognized to the extent that projected aggregate tax adjusted net income over the life of the goodwill does not cover the goodwill balance at the date of impairment. Accumulated amortization of goodwill was $35.0 million and $27.2 million at December 31, 2000 and 1999, respectively. F. COVENANTS NOT TO COMPETE Covenants not to compete are amortized on a straight-line basis over the term of the agreements, usually three to ten years. Accumulated amortization of covenants not to compete was $6.6 million and $4.7 million at December 31, 2000 and 1999, respectively. G. NOTES RECEIVABLE Notes receivable are not market traded financial instruments. The amounts recorded approximate fair value and are shown net of valuation allowances of $63,000 and $270,000 as of December 31, 2000 and 1999, respectively. The notes bear interest at rates varying from 7% to 9% per annum. H. DEFERRED REVENUE As part of a partnership with Heinz Pet Products ("HPP"), the Company agreed to provide certain consulting and management services for a three-year period commencing on February 1, 1997, for an aggregate fee of $15.3 million payable in semi-annual installments over a five-year period. Consulting and management fees earned under this agreement are included in revenue and amounted to $425,000 for the year ended December 31, 2000, and $5.1 million for each of the years ended December 31, 1999 and 1998, respectively. The agreement expired February 1, 2000. Page F-12 In October 2000, the Company entered into a two-year consulting agreement with HPP for which the Company was paid $5.0 million. Of the $5.0 million received, $4.0 million will be recognized as revenue ratably over the life of the agreement and $1.0 million will be used for certain marketing obligations under the agreement. As of December 31, 2000, $500,000 has been recognized as revenue and deferred revenue of $3.0 million and $1.5 million is recorded in other accrued liabilities and other liabilities, respectively. I. DEFERRED FINANCING COSTS In connection with the issuance of long-term debt in 2000, the Company incurred $13.9 million of deferred financing costs. These costs are shown net of accumulated amortization of $586,000 in the Consolidated Balance Sheet at December 31, 2000. The deferred financing costs are amortized using the effective interest method over the life of the related debt. J. INVESTMENT IN VPI AND ZOASIS During portions of 2000 and 1999, the Company had strategic investments in Veterinary Pet Insurance, Inc. ("VPI") and Zoasis.com, Inc. ("Zoasis"), both of which were accounted for on the cost basis. K. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK The carrying amount reported in the balance sheets for cash, accounts receivable, accounts payable and accrued liabilities approximates fair value because of the immediate or short-term maturity of these financial instruments. Concentration of credit risk with respect to accounts receivable are limited due to the diversity of the Company's customer base. L. USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. M. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133, which as amended is effective beginning in the fiscal year beginning after June 15, 2000, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities, (collectively referred to as "derivatives"). It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. Under the provisions of the Credit and Guaranty Agreement, dated September 20, 2000, the Company was required to enter into an arrangement to hedge interest rate exposure for a minimum notional amount of $62.0 million and a minimum term of two years. On November 13, 2000, the Company entered into a no fee interest rate collar agreement with Wells Fargo Bank effective November 15, 2000 and expiring November 15, 2002, (the "Collar Agreement"). The Collar Agreement is based on LIBOR, which resets monthly, and has a cap and floor notional amount of $62.5 million, with a cap and floor interest rate of 7.5% and 5.9%, respectively. The Collar Agreement is accounted for as a cash flow hedge which will require that the Company report the market value of the Collar Agreement in the balance sheet. Payments made or received as a result of a LIBOR outside of the cap or floor of the Collar Agreement will be accounted for as a component of net income. Page F-13 The Company adopted SFAS 133 effective January 1, 2001; however, had the Company adopted it in the year ending December 31, 2000, it would have reported a liability from interest rate hedging activities at the market rate of $525,000, $411,000 of which would have been recognized in comprehensive income and $114,000 which would have been recognized in other (income) expense. No payments were required under the Collar Agreement during the year ending December 31, 2000. With the exception of the Collar Agreement, management does not intend to enter into derivative contracts in the future and does not expect the implementation of SFAS 133 to have a material impact on its future earnings. N. RECLASSIFICATIONS Certain 1999 and 1998 balances have been reclassified to conform with the 2000 financial statement presentation. O. REVENUE RECOGNITION Revenue is recognized only after the following criteria are met: (i) there exists adequate evidence of the transactions; (ii) delivery of goods has occurred or services have been rendered; and (iii), the price is not contingent on future activity and collectibility is reasonably assured. P. RELATED PARTY TRANSACTIONS As part of an often-used acquisition strategy, the Company hires the selling doctor upon purchase of their practice. The Company may lease facilities from the selling doctor; the related lease agreements are negotiated as part of the acquisition before the doctor is hired. These arrangements are not contingent upon the current or future employment of the doctors. In June 2000, the Company invested $5.0 million for convertible preferred stock of Zoasis, an internet start-up business, majority-owned by Robert A. Antin, the Chief Executive Officer and a director of the Company. During the year ended December 31, 2000, the Company recognized marketing expense approximating $81,000 for services provided by Zoasis. In September 2000, the Company sold its 50.5% equity interest in Vet's Choice to HPP. As part of this sale, the Company received $1.0 million that was subsequently paid to the Wisdom Group L.P., of which, members of executive management had a 30.5% ownership interest. On September 20, 2000, the Company entered into a ten-year management services agreement with Leonard Green & Partners, L.P. ("Leonard Green") for services relating to investment banking, general consulting and financial planning. The agreement calls for monthly payments of $207,000 and is subject to an increase of 1.6% of any additional capital invested by Green Equity Investors, III, L.P., a Delaware limited partnership, any of its affiliates, or any of its co-investors in the Company. In addition, Leonard Green received one-time fees of approximately $7.6 million in connection with the Company's recapitalization on September 20, 2000. Q. MARKETING AND ADVERTISING Marketing and advertising production costs are expensed as incurred or the first time the advertisement is run. Media (primarily print) placement costs are expensed in the month the advertising appears. Total marketing and advertising expense is included in direct costs and amounted to $5.6 million, $4.3 million and $3.2 million for the years ended December 31, 2000, 1999 and 1998, respectively. Page F-14 3. ACQUISITIONS During 2000, the Company purchased 24 animal hospitals and one veterinary diagnostic laboratory, all of which were accounted for as purchases. Three of the acquired animal hospitals and the laboratory were merged into existing VCA facilities upon acquisition. Including acquisition costs, VCA paid an aggregate consideration of $29.6 million, consisting of $18.2 million in cash, $11.1 million in debt, and the assumption of liabilities totaling $315,000. The aggregated purchase price was allocated as follows: $2.7 million to tangible assets, $21.6 million to goodwill and $5.3 million to other intangibles. During 1999, the Company purchased 24 animal hospitals and two veterinary diagnostic laboratories all of which were accounted for as purchases. Five of the acquired animal hospitals and both laboratories were merged into existing VCA facilities upon acquisition. Including acquisition costs, VCA paid an aggregate consideration of $24.2 million, consisting of $10.4 million in cash, $12.4 million in debt, 70,712 shares of common stock of the Company with a value of $1.1 million, and the assumption of liabilities totaling $369,000. The aggregated purchase price was allocated as follows: $1.9 million to tangible assets, $18.6 million to goodwill and $3.8 million to other intangibles. In addition, on April 1, 1999, the Company completed the acquisition of AAH Management Corp. ("AAH") for a total consideration (including acquisition costs) of $29.0 million, consisting of 517,585 shares of VCA common stock, with a value at the date of acquisition of $7.8 million, $9.1 million in cash, $1.2 million in notes payable and the assumption of $10.9 million in liabilities. AAH operated 15 animal hospitals located in New York and New Jersey. The acquisition of AAH was accounted for as a purchase. The purchase price has been allocated as follows: $6.3 million to tangible assets, $21.9 million to goodwill, and $725,000 to other intangible assets. During 1998, the Company completed the acquisitions of 11 animal hospitals and one veterinary diagnostic laboratory. In connection with these acquisitions, which were accounted for as purchases, VCA paid an aggregate consideration including acquisition costs of $30.7 million, consisting of $20.2 million in cash, $6.5 million in debt, 171,564 shares of common stock of the Company with a value of $3.1 million, and the assumption of liabilities totaling $903,000. The $30.7 million aggregate purchase price was allocated $6.2 million to tangible assets, $23.4 million to goodwill and $1.2 million to other intangible assets. The pro forma results listed below are unaudited and reflect purchase price accounting adjustments assuming 2000 and 1999 acquisitions occurred at January 1, 1999. The pro forma results are not necessarily indicative of what actually would have occurred if the acquisitions had been in effect for the entire periods presented. In addition, they are not intended to be a projection of future results and do not reflect any efficiencies that might be achieved from the combined operation.
For the Years Ended December 31, (In thousands, except per share amounts) (Unaudited) 2000 1999 ------------ ------------ Revenue.................................. $ 369,958 $ 365,391 Net income (loss) available to comon stockholders..................... $ (12,587) $ 24,224 Diluted earnings per share............... $ (0.05) $ 0.07 Shares used for computing diluted earnings per share..................... 234,055 329,775
In connection with certain acquisitions, the Company assumed certain contractual arrangements whereby cash may be issued to former owners of acquired hospitals upon attainment of specified financial criteria over periods of three to five years ("Earn-Out Payments"), as set forth in the respective agreements (the "Earn-Out Arrangements"). The Earn-Out Arrangements provide for contingent Earn-Out Payments if the acquired entity achieves or exceeds contractually defined revenue targets during the defined earn-out period. The payments are Page F-15 either fixed in amount or are based on a multiplier of revenue. When the contingency is resolved and the additional consideration is distributed, the Company records the consideration issued as an additional cost of the acquired entity. The additional consideration of affected assets, usually goodwill, is amortized over the remaining life of the asset. Earn-Out Payments in 2000 and 1999 consisted entirely of cash approximating $486,000 and $326,000, respectively. Earn-Out Payments in 1998 amounted to approximately $358,000, consisting of $311,000 in cash and 2,394 shares of common stock valued on the date of issuance at $47,000. 4. JOINT VENTURES AND INVESTMENTS During fiscal year 2000, the Company made a $5.0 million investment in Zoasis. In December 2000, the Company determined that the value of this investment was impaired. As a result, the Company recognized a loss of $5.0 million on the write-down of its investment in Zoasis. In November 2000, the Company sold its 50.5% equity interest in Vet's Choice to HPP. The Company received $1.5 million for the sale, of which $1.0 million was recognized as a liability for payment to other equity investors in the joint venture. The Company made this payment in January 2001. In December 1997 and January 1998, the Company made a combined $5.0 million strategic investment in VPI, the largest provider of pet health insurance in the United States. The Company sold its investment in VPI and received $8.2 million in cash in February 2000, resulting in a one-time gain of approximately $3.2 million. Page F-16 5. LONG-TERM OBLIGATIONS Long-term obligations consisted of the following at December 31 (in thousands):
2000 1999 ---------- ---------- SENIOR TERM A Notes payable of Operating Company, maturing in 2006, secured by assets, variable interest rates (weighted average interest rate at 9.882% during the year ended December 31, 2000, and an interest rate of 9.938% at December 31, 2000)................. $ 50,000 $ -- SENIOR TERM B Notes payable of Operating Company, maturing in 2008, secured by assets, variable interest rates (weighted average interest rate at 10.382% during the year ended December 31, 2000, and an interest rate of 10.438% at December 31, 2000)................ 200,000 -- SENIOR SUBORDINATED Notes payable of Operating Company, maturing in NOTES 2010, unsecured, fixed interest rate of 13.5%........ 20,000 -- HOLDING COMPANY Notes payable of Holding Company, maturing in SENIOR NOTES 2010, unsecured, fixed interest rate of 15.5%........ 104,306 -- SECURED SELLER NOTES Notes payable and other obligations, various maturities through 2014, secured by assets and stock of certain subsidiaries, various interest rates ranging from 5.3% to 12.0%..................... 1,328 69,213 MORTGAGE DEBT Notes payable and other obligations, various maturities through 2008, secured by land and buildings of certain subsidiaries, various interest rates ranging from 7.0% to 9.0%...................... -- 3,212 CONVERTIBLE DEBT Notes payable, convertible into VCA common stock at prices ranging from $0.47 to $1.00 per share, due through 2013, secured by stock of certain subsidiaries at interests rates ranging from 7.0% to 10.0%................................... -- 1,803 UNSECURED DEBT Notes payable, various maturities through 2004, Adjustable interest rates of 6.2% and fixed interest rates ranging from 7.0% to 12.0%............ 350 2,982 DEBENTURES Convertible subordinated 5.25% debentures, due in 2006, convertible into approximately 36.8 million shares of VCA common stock at $2.29 per share........ -- 84,385 ----------- ---------- Total debt obligations............................... 375,984 161,595 Capital lease obligations............................ 110 187 Less - unamortized discount.......................... (13,345) (247) ----------- ---------- 362,749 161,535 Less - current portion............................... (5,756) (21,901) ----------- ---------- $ 356,993 $ 139,634 =========== ==========
Page F-17 The annual aggregate scheduled maturities of debt obligations for the five years subsequent to December 31, 2000 are presented below (in thousands): 2001................................... $ 5,756 2002................................... 8,592 2003................................... 8,960 2004................................... 9,850 2005................................... 17,486 Thereafter............................. 325,340 ---------- $ 375,984 ========== During the year ended December 31, 2000, the Company recorded an extraordinary loss of approximately $4.5 million, before effect of the income tax benefit, primarily as a result of the early redemption of $84.4 million of convertible subordinated 5.25% debentures. The Company entered into a Credit and Guaranty Agreement, dated September 20, 2000, with various lenders for $300.0 million of Senior Secured Credit Facilities (the "Credit Agreement'). The Credit Agreement includes a $50.0 million Revolving Credit Facility and the Senior Term A and B Notes. A first priority lien has been granted on certain of the Company's assets, including a pledge of all the capital stock of the Operating Company's subsidiaries, to secure the borrowings under the Credit Agreement. The Revolving Credit Facility allows the Company to borrow up to an aggregate principal amount of $50.0 million and expires in 2006. As of December 31, 2000, the Company has not utilized the Revolving Credit Facility. The Revolving Credit Facility and the Senior Term A Notes bear interest at an annual rate equal to: (1) the greater of Wells Fargo Bank's prime lending rate or the Federal funds effective rate plus 0.5% (the "Base Rate"), plus an applicable margin for unpaid principal amounts maintained as base rate loans; or (2) the average British Bankers Association Interest Settlement Rate for deposits ("LIBOR") plus an applicable margin for unpaid principal amounts maintained as eurodollar rate loans. The applicable margin is 3.25% for the first twelve months ending September 20, 2001. Thereafter, applicable margin varies based upon the Company's leverage ratio as defined in the Credit Agreement. The applicable margin varies from 3.25% for a leverage ratio of 3.75 to 1.0 to 2.00% for a leverage ratio of 2.25 to 1.0. The Senior Term B Notes bear interest at an annual rate equal to: (1) the Base Rate plus 2.75% for unpaid principal amounts maintained as base rate loans; or (2) LIBOR plus 3.75% for unpaid principal amounts maintained as eurodollar rate loans. Interest for the Senior Term A and B Notes is payable in cash at the earlier of the maturity of a eurodollar rate loan or on a quarterly basis. Maturities of Senior A Term Notes principal during each of the years 2001 through 2006 are $2.5 million, $6.3 million, $7.2 million, $8.7 million, $12.5 million and $12.8 million, respectively. The principal for the Senior B Term Notes matures at $2.5 million per year for the first six years and $92.5 million per year for 2007 and 2008. The Credit Agreement contains certain financial covenants pertaining to interest coverage, fixed charge coverage and leverage ratios which commence in 2001. In addition, the Credit Agreement has restrictions pertaining to capital expenditures, acquisitions and the payment of dividends on all classes of stock. Page F-18 On September 20, 2000, the Operating Company issued $20.0 million of 13.5% Senior Subordinated Notes, which are subordinated to the borrowings under the Credit Agreement. Interest on the Senior Subordinated Notes is payable in cash on a semi-annual basis. The effective interest rate for these notes is 16.2%. The $20.0 million aggregate principal amount of the Senior Subordinated Notes is due in full in September 2010. In addition, on September 20, 2000, the Holding Company issued $100.0 million of 15.5% Senior Notes (the "Holding Company Senior Notes"). The Holding Company Senior Notes are subordinated to the Operating Company's liabilities. Interest on the Holding Company Senior Notes is payable in kind on a semi-annual basis through March 2005. Thereafter, interest is payable in cash on a semi-annual basis. The effective rate for these notes is 17.3%. A mandatory redemption of principal and accumulated interest paid in kind approximating $80.0 million is due September 2005. The remaining principal is due in full in September 2010. There were no significant differences between the carrying amount and fair values of the Company's long-term debt as of December 31, 2000. 6. REDEEMABLE PREFERRED STOCKS In 2000, the Company adopted an Amended and Restated Certificate of Incorporation, which authorized the issuance of up to 6,000,000 shares of preferred stock. In connection with the Recapitalization, the Company issued 2,998,408 shares of Series A Senior Redeemable Exchangeable Cumulative Preferred Stock ("Series A Preferred Stock"), par value $.01 per share, and 2,970,822 shares of Series B Junior Redeemable Cumulative Preferred Stock ("Series B Preferred Stock"), par value $.01 per share. In exchange for the issuance of the Series A Preferred Stock and Series B Preferred Stock, the Company received $75.0 million and $74.3 million, respectively. The Series A and Series B Preferred Stock earn dividends at the rate of 14% and 12% per annum of the liquidation preference, respectively. The liquidation preference for both the Series A and Series B Preferred Stock is the sum of $25.00 per share plus accrued and unpaid dividends less any special dividend paid. Holders of preferred stock are entitled to receive dividends, whether or not declared by the Board of Directors, out of funds legally available. Dividends are payable in cash on a quarterly basis. If dividends are not paid when due, the amount payable is added to the liquidation preference. For the year ended December 31, 2000, dividends earned but not paid were $2.9 million and $2.5 million for the Series A and Series B Preferred Stock, respectively. These dividends were recorded as an increase to preferred stock and a corresponding decrease to retained earnings. The Company has the option to redeem both series of preferred stock beginning September 2002. The prepayment premium at September 2002 is 109%, at September 2003 is 106%, and at September 2004 is 103%. Beginning September 2005 and thereafter, the Company has the option to redeem the preferred shares at 100% of the liquidation preference. The Company is required to redeem the preferred shares at 100% of liquidation preference in September 2012 from funds legally available. The Series A Preferred Stock is ranked senior to the Series B Preferred Stock and the Company's common stock. The Company has the option to exchange all the Series A Preferred Stock into 14% Senior Subordinated Debentures due 2012 (the "Exchange Debentures"). The Exchange Debentures are subordinated to the Holding Company Senior Notes. The Series B Preferred Stock is ranked senior to the Company's common stock. Neither series of preferred stock is convertible into common stock or securities convertible into common stock. Prior to the Recapitalization, there were no preferred shares of the Company issued or outstanding. 7. COMMON STOCK In 2000, the Company's Board of Directors declared a fifteen-for-one stock split. The stock split has been retroactively reflected in the accompanying financial statements and footnotes. Page F-19 During 2000 and prior to the Recapitalization, the Company repurchased 3,315,000 shares of its common stock for $3.3 million. On September 20, 2000, in connection with the Recapitalization, the Company repurchased and retired a majority of the outstanding common stock of the Company. The 2,656,335 remaining shares were rolled over by certain members of management of the Company. In addition, the Company retired all of its shares held in treasury. In 2000, the Company adopted an Amended and Restated Certificate of Incorporation, which authorized the issuance of up to 24,000,000 common shares with a par value of $.01 per common share. The Company had approximately 17,524,000 and 325,620,000 common shares outstanding at December 31, 2000 and 1999, respectively. During 1999, the Company issued 8,820,000 shares of its common stock valued at $8.8 million, the fair market value at the date of commitment, as a portion of the consideration for certain acquisitions. During 1999, the Company repurchased 5,895,000 shares of its common stock for $4.8 million. 8. WARRANTS In connection with the Recapitalization, the Company issued warrants to purchase 1,149,990 shares of the Company's common stock to certain investors. The warrants allow the holders to purchase common shares at a price equal to $.0007. The Company valued these warrants at their fair market value on the date of issuance of $1.1 million, which was recorded as part of stockholders' equity. 9. NOTES RECEIVABLE FROM STOCKHOLDERS Concurrent with the Recapitalization, the Company sold 518,000 common shares to certain non-executive employees of the Company. As consideration for the issuance of common stock, the Company received notes with an aggregate value approximating $518,000. Each note earns interest at the rate of 6.2% per annum, is compounded annually and is due and payable on September 16, 2007. The notes are collateralized by the Company's common stock which was purchased by the stockholders. At December 31, 1999, the Company held two notes receivable with balances totaling $654,000 from certain management stockholders of the Company. These notes arose from transactions whereby the Company loaned funds to the management stockholders to purchase an aggregate of 2,739,990 shares of the Company's common stock. These notes had an interest rate of 6.1% per annum and had a maturity date of January 22, 2001. The receivables are shown in the accompanying 1999 consolidated balance sheet as a reduction of stockholders' equity. In connection with the Recapitalization in September 2000, the Company discharged the indebtedness of these notes. The total principal and interest approximating $688,000 are included in Recapitalization costs. 10. STOCK-BASED COMPENSATION PLANS The Company has granted stock options to various employees. The Company accounts for these plans under APB Opinion 25. In November 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 recommends changes in accounting for employee stock-based compensation plans and requires certain disclosures with respect to these plans. SFAS 123 disclosures have been adopted by the Company effective January 1, 1996. Page F-20 Had compensation cost for these plans been determined consistent with SFAS 123, the Company's net income (loss) and earnings (loss) per share would have been reduced to the following PRO FORMA amounts (in thousands, except per share amounts):
2000 1999 1998 ---------- ---------- -------- Net income (loss) available to common stockholders: As reported $(13,802) $ 22,357 $ 16,268 Pro forma (14,178) 19,214 12,040 Diluted earnings (loss) per share: As reported $ (.06) $ 0.07 $ 0.05 Pro forma (.06) 0.06 0.04
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
2000 1999 1998 ---------- ---------- -------- Risk free interest rate 6.0% 5.8% 5.0% Dividend yield 0.0% 0.0% 0.0% Expected volatility 0.0% 54.2% 64.5% Weighted fair value average $0.78 $7.97 $9.25 Expected option life (years) 5 7 7
In connection with the Recapitalization, certain of the Company's employees elected to exchange their stock options for newly issued stock options. The number of stock options issued to each employee was equal to the intrinsic value of their old stock options divided by the strike price of the new stock options ($0.20). These stock options will be accounted for as variable awards, and related expense of $555,000 was recorded in the year ended December 31, 2000. As of December 31, 2000, 693,870 such new options are outstanding. These options are fully vested and expire in 2010. In September 2000, the Company issued 631,785 stock options under the 1996 Stock Incentive Plan. These options vest ratably over four years from the date of grant. The exercise price of these options is $1.00 (the fair market value at such date) and they expire in 2010. The table below summarizes the transactions in the Company's stock option plans (in thousands, except per share amounts):
2000 1999 1998 -------- -------- -------- Options outstanding at beginning of year 57,300 57,315 53,760 Exchanged in connection with Recapitalizaiton 694 -- -- Granted 632 2,490 7,275 Exercised (1,815) (750) (2,910) Purchased (54,585) -- -- Canceled (900) (1,755) (810) -------- -------- -------- Options outstanding at end of year (Exercise prices ranging from $0.20 to $1.00 at December 31, 2000) 1,326 57,300 57,315 ======== ======== ======== Exercisable at end of year 694 30,465 25,110 ======== ======== ========
Page F-21 The following table summarizes information about certain options in the stock option plans outstanding as of December 31, 2000 in accordance with SFAS 123:
OPTIONS OUTSTANDING OPTIONS EXERCISEABLE - ---------------------------------------------------------------- ----------------------------- WEIGHTED AVG. NUMBER REMAINING WEIGHTED AVG. NUMBER WEIGHTED AVG. EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE - -------------- ----------- ---------------- -------------- ----------- -------------- $ 0.20 694 9.73 $ 0.20 694 $ .20 1.00 632 9.73 1.00 -- 1.00 ------ ------- 1,326 694 -===== =======
11. COMMITMENTS AND CONTINGENCIES A. LEASES The Company operates many of its animal hospitals from premises that are leased from the hospitals' previous owners under operating leases with terms, including renewal options, ranging from one to 35 years. Certain leases include purchase options which can be exercised at the Company's discretion at various times within the lease terms. The annual lease payments under the lease agreements have provisions for annual increases based on the Consumer Price Index or other amounts specified within the lease contracts. The future minimum lease payments on operating leases at December 31, 2000, including renewal option periods, are as follows (in thousands): 2001............................................... $ 11,161 2002............................................... 10,825 2003............................................... 10,746 2004............................................... 10,828 2005............................................... 10,626 Thereafter......................................... 112,065 ---------- $166,251 ========== Rent expense totaled $11.7 million, $10.4 million and $9.1 million for the years ended December 31, 2000, 1999 and 1998, respectively. Rental income totaled $259,000, $310,000 and $203,000 for the years ended December 31, 2000, 1999 and 1998, respectively. B. EARN-OUT PAYMENTS In connection with certain acquisitions, the Company assumed certain contractual arrangements whereby additional cash may be paid to former owners of acquired hospitals upon attainment of specified financial criteria over periods of one to two years, as set forth in the respective agreements. The amount to be paid cannot be determined until the earn-out periods expire and the attainment of criteria is established. If the specified financial criteria is attained in the future, but not exceeded, the Company will be obligated to make cash payments of approximately $1.1 million over the next two years. Page F-22 C. OFFICERS' COMPENSATION Certain members of the Company's executive management have employment agreements with the Company that aggregate to $1.4 million per year. The agreements allow for upward adjustments to annual salary based on the Consumer Price Index for Los Angeles County. The agreements also call for a maximum of $900,000 to be paid as annual bonuses based on EBITDA targets. Lastly, the agreements call for aggregate severance payments under different scenarios with the maximum amount approximating $8.0 million. D. MANAGEMENT SERVICES On September 20, 2000, the Company entered into a ten-year management services agreement with Leonard Green & Partners, L.P. for services relating to investment banking, general consulting and financial planning. The agreement calls for monthly payments of $207,000 and is subject to an increase of 1.6% of any additional capital invested by Green Equity Investors III, L.P., a Delaware limited partnership, any of its affiliates, or any of its co-investors in the Company. In addition, Leonard Green received one-time fees of approximately $7.6 million in connection with the Company's recapitalization on September 20, 2000. E. STATE LAWS The laws of many states prohibit business corporations from providing, or holding themselves out as providers of, veterinary medical care. These laws vary from state to state and are enforced by the courts and by regulatory authorities with broad discretion. While the Company seeks to structure its operations to comply with the corporate practice of veterinary medicine laws of each state in which it operates, there can be no assurance that, given varying and uncertain interpretations of such laws, the Company would be found to be in compliance with restrictions on the corporate practice of veterinary medicine in all states. A determination that the Company is in violation of applicable restriction on the practice of veterinary medicine in any state in which it operates could have a material adverse effect on the Company, if the Company were unable to restructure its operations to comply with the requirements of such state. F. OTHER CONTINGENCIES The Company has certain contingent liabilities resulting from litigation and claims incident to the ordinary course of its business. Management believes that the probable resolution of such contingencies will not affect the Company's financial position or results of operations. Page F-23 12. CALCULATION OF PER SHARE AMOUNTS A reconciliation of the income and shares used in the computations of the basic and diluted earnings (loss) per share ("EPS") for each of the three years in the period ended December 31, 2000 follows (amounts shown in thousands, except per share amounts):
2000 1999 1998 ----------- ---------- ---------- Income (loss) before extraordinary item $ (5,752) $ 22,357 $ 16,268 Increase in carrying amount of Redeemable Preferred Stock (5,391) -- -- ----------- ---------- ---------- Income (loss) from continuing operations available to common stockholders (Basic and Diluted) $ (11,143) $ 22,357 $ 16,268 =========== ========== ========== Weighted average common shares outstanding: Basic 234,055 315,945 305,250 Effect of dilutive common shares stock options -- 13,830 23,850 ----------- ---------- ---------- Diluted 234,055 329,775 329,100 ----------- ---------- ---------- Earnings per share (before extraordinary items) Basic $ (0.05) $ 0.07 $ 0.05 Diluted $ (0.05) $ 0.07 $ 0.05
On September 20, 2000, the Company purchased a majority of its outstanding common stock in connection with the Recapitalization. Immediately after this repurchase, the Company issued 517,995 and 14,350,005 shares of common stock to its management and certain investors, respectively. At December 31, 2000, warrants to purchase an aggregate of 1,149,990 common shares and 779,805 stock options were outstanding but were not included in the computation of Diluted EPS because conversion would have an antidilutive effect on Diluted EPS. The $84.4 million of 5.25% convertible debentures which were convertible into 36,849,345 shares of common stock were outstanding at both December 31, 1999 and 1998, but were not included in the computation of Diluted EPS, because conversion would have an antidilutive effect on Diluted EPS. These convertible debentures were retired in 2000. 13. INCOME TAXES The provision for income taxes is comprised of the following for the three years ended December 31, (in thousands):
2000 1999 1998 ---------- ---------- ---------- Federal: Current........................... $ (889) $ 10,161 $ 8,064 Deferred.......................... 1,219 515 2,080 ---------- ---------- ---------- 330 10,676 10,144 ---------- ---------- ---------- State: Current........................... (142) 2,850 2,157 Deferred ......................... 166 834 653 ---------- ---------- ---------- 24 3,684 2,810 ---------- ---------- ---------- $ 354 $ 14,360 $ 12,954 ========== ========== ==========
The consolidated statement of operations for the year ended December 31, 2000 includes a provision for income taxes of $2.2 million and a benefit for income taxes of $1.8 million associated with the early extinguishment of debt; the net provision is approximately $354,000 as reflected in the table above. Page F-24 The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires recognition of deferred tax liabilities and assets for the expected future consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates for the year in which the differences are expected to reverse. The net deferred tax asset (liability) at December 31 is comprised of (in thousands):
2000 1999 ---------- --------- Current deferred tax assets (liabilities): Accounts receivable............................... $ 1,273 $ 2,782 State taxes....................................... (903) (457) Other liabilities and reserves.................... 3,696 2,347 Start-up costs.................................... 66 66 Restructuring charges............................. -- 815 Other assets...................................... (294) (299) Inventory......................................... 817 817 Valuation allowance............................... -- (1,858) ---------- --------- Total current deferred tax asset, net.......... $ 4,655 $ 4,213 ========== ========= 2000 1999 ---------- --------- Non-current deferred tax (liabilities) assets: Net operating loss carryforwards.................. $ 6,460 $ 5,704 Write-down of assets.............................. 1,377 1,433 Start-up costs.................................... 302 300 Other assets...................................... 3,537 445 Intangible assets................................. (11,934) (9,204) Property and equipment............................ (1,720) (1,267) Unrealized loss on investments.................... 2,555 355 Valuation allowance............................... (9,061) (4,421) ---------- --------- Total non-current deferred tax liability, net.. $ (8,484) $ (6,655) ========== =========
Under the Tax Reform Act of 1986, the utilization of NOL carryforwards to reduce taxable income will be restricted under certain circumstances. Events that cause such a limitation include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. Management believes that the Pets' Rx, Pet Practice and AAH mergers caused such a change of ownership and, accordingly, utilization of the NOL carryforwards may be limited in future years. Accordingly, the valuation allowance is principally related to subsidiaries' NOL carryforwards as well as certain acquisition related expenditures where the realization of this deduction is uncertain at this time. At December 31, 2000, the Company has Federal net operating loss ("NOL") carryforwards of approximately $20.3 million, comprised principally of NOL carryforwards acquired in the Pets' Rx, Pet Practice and AAH mergers. Also included in this amount is the loss generated in the current year which can be utilized with no cumulative ownership change limitations in future years. These NOL carryforwards expire at various dates through 2015. On October 25, 1999, the FASB's Emerging Issues Task Force ("EITF") reached consensus in Issue 99-15, "Accounting for Decreases in Deferred Tax Asset Valuation Allowances Established in a Purchase Business Combination as a Result of a Change in Tax Regulation" ("Issue No. 99-15"). Issue No. 99-15 is the EITF's response to the Internal Revenue Services's June 25, 1999 ruling, as stated in Treasury Regulation 1.1502-21, Page F-25 reducing the requirements for using certain net operating loss carryovers and carrybacks ("NOLs"). As a result, the Company recorded a deferred tax benefit during the year ended December 31, 1999 equal to $2.1 million. As a result of a loss of $5.0 million recognized by the Company on its investment in Zoasis, the valuation allowance is increased since it is more likely than not that the carrying amount of the asset will not be recognized due to the character of the loss. A reconciliation of the provision for income taxes to the amount computed at the Federal statutory rate for the three years ended December 31, is as follows:
2000 1999 1998 -------- -------- -------- Federal income tax at statutory rate.................... (35)% 35% 35% Effect of amortization of goodwill...................... 18 4 3 State taxes, net of federal benefit..................... (2) 7 6 Tax exempt income....................................... (1) (1) (1) Change in valuation allowance associated with the Recapitalization, and the write-off of investments.. 24 (6) -- Other................................................... -- -- 1 -------- -------- -------- 4% 39% 44% ======== ======== ========
14. 401(K) PLAN During 1992, the Company established a voluntary retirement plan under Section 401(k) of the Internal Revenue Code. The plan covers all employees with at least six months of employment with the Company and provides for annual matching contributions by the Company at the discretion of the Company's board of directors. In 2000, 1999 and 1998, the Company provided a total matching contribution approximating $715,000, $353,000 and $942,000, respectively. 15. LINES OF BUSINESS During the three years ending December 31, 2000, the Company had three reportable segments: Animal Hospital, Laboratory and Corporate. These segments are strategic business units that have different products, services and functions. The segments are managed separately because each is a distinct and different business venture with unique challenges, rewards and risks. The Animal Hospital segment provides veterinary services for companion animals and sells related retail products. The Laboratory segment provides testing services for veterinarians both associated with the Company and independent of the Company. Corporate provides selling, general and administrative support for the other segments and recognizes revenue associated with consulting agreements. Page F-26 The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance of segments based on profit or loss before income taxes, interest income, interest expense and minority interest, which are evaluated on a consolidated level. For purposes of reviewing the operating performance of the segments, all inter-company sales and purchases are accounted for as if they were transactions with independent third parties at current market prices. The following is a summary of certain financial data for each of the three segments (in thousands):
INTER-SEGMENT ANIMAL SALES HOSPITAL LABORATORY CORPORATE ELIMINATIONS TOTAL --------- ---------- --------- -------------- ---------- 2000 Revenue....................... $ 240,624 $ 119,300 $ 925 $ (6,162) $ 354,687 Operating income (loss)....... 30,818 34,355 (45,968) -- 19,205 Recapitalization costs........ -- -- 34,823 -- (34,823) Depreciation/amortization expense....................... 12,167 4,472 2,239 -- 18,878 Identifiable assets........... 312,473 109,453 61,144 -- 483,070 Capital expenditures.......... 18,751 2,194 1,610 -- 22,555 1999 Revenue....................... $217,988 $103,282 $ 5,100 $ (5,810) $ 320,560 Operating income (loss)....... 26,765 28,039 (7,788) -- 47,016 Year 2000 remediation costs... -- -- 2,839 -- 2,839 Reversal of restructuring charges....................... -- -- 1,873 -- 1,873 Depreciation/amortization expense....................... 10,472 4,234 1,757 -- 16,463 Identifiable assets........... 280,742 105,224 40,534 -- 426,500 Capital expenditures.......... 15,970 1,997 3,836 -- 21,803 1998 Revenue....................... $191,888 $89,896 $ 5,100 $ (5,845) $ 281,039 Operating income (loss)....... 23,487 20,141 (4,794) -- 38,834 Depreciation/amortization expense....................... 8,488 4,074 570 -- 13,132 Identifiable assets........... 226,182 106,217 60,484 -- 392,883 Capital expenditures.......... 7,450 3,813 415 -- 11,678
Corporate operating loss includes salaries, general and administrative expense for the executive, finance, accounting, human resources, marketing, purchasing and regional operational management functions that support the Animal Hospital and Laboratory segments. The following is a reconciliation between total segment operating income after eliminations and consolidated income (loss) before provision for income taxes and extraordinary items as reported on the consolidated statements of operations (in thousands):
2000 1999 1998 ----------- ----------- --------- Total segment operating income after Eliminations....................................... $ 19,205 $ 47,016 $ 38,834 Interest income....................................... 850 1,194 2,357 Interest expense...................................... (20,742) (10,643) (11,189) Minority interest..................................... (1,066) (850) (780) Gain on sale of VPI................................... 3,200 -- -- Loss on investment in Zoasis.......................... (5,000) -- -- ----------- ---------- ---------- Income (loss) before provision for income taxes and extraordinary items............................. $ (3,553) $ 36,717 $ 29,222 =========== ========== ==========
16. RESTRUCTURING AND ASSET WRITE-DOWN During 1996, the Company adopted and implemented a restructuring plan (the "1996 Plan") and recorded a restructuring charge of $5.7 million and an asset write-down charge of $9.5 million. The major components of the 1996 Plan included: Page F-27 o the termination of leases, the write-down of intangibles, property and equipment, and employee terminations in connection with the closure, sale or consolidation of 12 animal hospitals; o the termination of contracts and leases, the write-down of certain property and equipment, and the termination of employees in connection with the restructuring of the Company's laboratory operations; and o contract terminations and write-down of assets in connection with the migration to common communications and computer systems. Collectively, the 12 hospitals had aggregate revenue of $6.8 million and net operating loss of $350,000 for the year ended December 31, 1996. The restructuring of the Company's laboratory operations consisted primarily of: o plans to relocate the Company's facility in Indiana to Chicago; o the downsizing of its Arizona laboratory operations; o the standardization of laboratory and testing methods throughout all of the Company's laboratories, resulting in the write-down of equipment that will no longer be utilized; and o the shutdown of a laboratory facility in the Midwest. During 1999, pursuant to the 1996 Plan, the Company incurred the following: o Cash expenditures for $345,000 for lease and other contractual obligations. o Non-cash asset write-downs of $157,000, primarily pertaining to hospitals previously closed and the shutdown of certain computer systems. o The Company recognized a $321,000 favorable settlement related to a laboratory operations' contract that was terminated as part of the 1996 restructuring plan. o During the fourth quarter of 1999, the Company was released from its contractual obligation pertaining to certain facility leases for hospitals that were sold in 1997. In addition, the Company reached a favorable settlement on contractual obligations pertaining to its migration to common communications and computer systems, a component of the 1996 Plan. As a result of these two favorable outcomes, the Company reversed $889,000 of restructuring charges. During 1998, the Company took the following actions pursuant to the 1996 Plan: o The Company closed one animal hospital. o The Company shutdown certain computer hardware and software, as part of our migration to common computer systems. o The Company decided that two hospitals would continue to be operated instead of closed as was originally outlined in the 1996 restructuring plan. The hospitals' local markets improved since the 1996 Plan was determined, causing the Company's management to revise its plan. o The Company terminated its attempt to sell one hospital because it has been unable to negotiate a fair sales price based on the hospital's operating results Page F-28 Reserves of $593,000 related to the three hospitals were ultimately retained, were utilized to offset increases in the expected cost to extinguish lease commitments and contract obligations that were part of the 1996 Plan. As of December 31, 1999, all phases of the 1996 Plan were complete and no restructuring reserves remained on the Company's balance sheet. During 1997, the Company reviewed the financial performance of its hospitals. As a result of this review, an additional 12 hospitals were determined not to meet the Company's performance standards. Accordingly, the Company adopted phase two of its restructuring plan (the "1997 Plan") resulting in restructuring and asset write-down charges of $2.1 million. The major components of the 1997 Plan consisted of the termination of leases, amounting to $1.2 million, and the write-down of intangibles, property and equipment, amounting to $876,000, in connection with the closure or sale of 12 animal hospitals. Collectively, the 12 hospitals had aggregate revenue of $5.4 million and net operating income of $176,000 for the year ended December 31, 1997. During the year ended December 31, 2000, the Company incurred $190,000 of expenditures for lease and other contractual obligations. During 1999, the actions taken pursuant to the 1997 Plan were as follows: o The Company sold one hospital resulting in cash expenditures of $2,000 and non-cash asset write-downs of $64,000. o The Company closed three hospitals resulting in cash expenditures of $4,000 and non-cash asset write-downs of $53,000. o The Company incurred cash expenditures of $71,000 for lease and other contractual obligations. o The Company recorded an additional $28,000 non-cash asset write-down pertaining to a hospital previously closed. o During the fourth quarter of 1999, the Company reached favorable settlements from the sale and/or closure of the hospitals noted in the first two bulleted points above. As a result the Company reversed $663,000 of restructuring charges. During 1998, the Company closed three animal hospitals pursuant to the 1997 Plan, resulting in the write-off of $299,000 of property and equipment and cash expenditures of $81,000 for lease obligations and closing costs. Also during 1998, we determined that five of the animal hospitals that were to be sold as a part of the 1997 Plan would be kept due to their improved performance. At December 31, 2000, $152,000 of the restructuring reserves from the 1997 Plan remain on our balance sheet, consisting primarily of lease and other contractual obligations. All significant phases of the 1997 Plan were complete as of December 31, 1999, although certain lease obligations will continue though 2005. Page F-29 The following tables summarize the activity in the Company's restructuring reserves (in thousands):
THE 1996 PLAN CASH NON-CASH CHARGES CHARGES TOTAL --------- --------- --------- Balance, December 31, 1997.................................... $2,635 $ 377 $ 3,012 Cash expenditures for lease and other contractual obligations .............................................. (989) -- (989) Non-cash net assets write-downs .......................... -- (632) (632) Reclassifications ........................................ (255) 255 -- --------- --------- --------- Balance, December 31, 1998.................................... 1,391 -- 1,391 Cash expenditures for lease and other contractual obligations .............................................. (345) -- (345) Non-cash net asset write-downs ........................... -- (157) (157) Reclassifications ........................................ (157) 157 -- Reversal of restructuring reserves........................ (889) -- (889) --------- --------- --------- Balance, December 31, 1999.................................... $ -- $ -- $ -- ========= ========= ========= THE 1997 PLAN CASH NON-CASH CHARGES CHARGES TOTAL --------- --------- --------- Balance, December 31, 1997................................... $ 842 $ 766 $ 1,608 Cash expenditures for lease and other contractual obligations............................................... (81) -- (81) Non-cash net assets write-downs .......................... -- (299) (299) Reclassifications......................................... 105 (105) -- --------- --------- --------- Balance, December 31, 1998.................................... 866 362 1,228 Cash expenditures for lease and other contractual obligations .............................................. (77) -- (77) Non-cash net asset write-downs ........................... -- (145) (145) Reversal of restructuring reserves........................ (446) (217) (663) --------- --------- --------- Balance, December 31, 1999.................................... 343 -- 343 Cash expenditures for lease and other contractual obligations .............................................. (190) -- (190) --------- --------- --------- Balance, December 31, 2000.................................... $ 153 $ -- $ 153 ========= ========= =========
17. SUBSEQUENT EVENTS From January 1, 2001 through March 28, 2001, the Company has acquired nine animal hospitals, of which two were merged upon acquisition into existing VCA facilities, for an aggregate consideration (including acquisition costs) of $11.9 million, consisting of $10.3 million in cash, $1.5 million in debt and the assumption of liabilities totaling $80,000. In addition, on January 30, 2001, the Company opened a diagnostics imaging center that performs CT scans and MRI's. The total cost of forming the center was $800,000, consisting of equipment and leasehold improvements. Page F-30
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2001 AND DECEMBER 31, 2000 (IN THOUSANDS) (UNAUDITED) Assets June 30, December 31, 2001 2000 ----------- ------------ Current assets: Cash and equivalents ............................... $ 19,166 $ 10,519 Trade accounts receivable, less allowance for uncollectible accounts of $5,003 and $4,110 at June 30, 2001 and December 31, 2000, respectively........................................ 17,623 15,450 Inventory, prepaid expense and other ............... 7,922 9,197 Deferred income taxes .............................. 4,565 4,655 Prepaid income taxes ............................... 7,496 9,402 --------- --------- Total current assets ........................... 56,772 49,223 Property and equipment, net ........................... 87,889 86,972 Goodwill, net ......................................... 311,833 310,185 Covenants not to compete, net ......................... 16,857 19,549 Notes receivable, net ................................. 2,642 2,178 Deferred financing costs, net ......................... 12,319 13,373 Other.................................................. 1,417 1,590 --------- --------- $ 489,729 $ 483,070 ========= ========= Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term obligations ........... $ 7,731 $ 5,756 Accounts payable ................................... 9,310 8,393 Accrued payroll and related liabilities ............ 10,111 8,335 Other accrued liabilities .......................... 18,461 17,242 --------- --------- Total current liabilities ...................... 45,613 39,726 Long-term obligations, less current portion ........... 360,356 356,993 Deferred income taxes ................................. 9,155 8,484 Minority interest ..................................... 4,653 3,610 Other liabilities ..................................... 500 1,500 Series A Redeemable Preferred Stock ................... 83,422 77,875 Series B Redeemable Preferred Stock ................... 81,420 76,747 Stockholders' equity (deficit): Common stock ....................................... 175 175 Additional paid-in capital ......................... 19,435 18,498 Notes receivable from stockholders ................. (518) (518) Accumulated deficit................................. (113,343) (100,020) Accumulated comprehensive loss ..................... (1,139) -- --------- --------- Total stockholders' deficit..................... (95,390) (81,865) --------- --------- $ 489,729 $ 483,070 ========= =========
The accompanying notes are an integral part of these condensed consolidated balance sheets. Page F-31
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED) (IN THOUSANDS) Six Months Ended June 30, 2001 2000 ---------- --------- Revenue................................. $ 202,729 $ 177,285 Direct costs............................ 141,644 126,517 ---------- ---------- Gross profit......................... 61,085 50,768 Selling, general and administrative..... 15,815 13,562 Depreciation and amortization........... 12,689 8,607 Write-down of assets.................... 7,967 -- Stock-based compensation................ 382 -- ---------- ---------- Operating income..................... 24,232 28,599 Net interest expense.................... 22,070 4,700 Other (income) expense.................. 1,099 (3,200) ---------- ---------- Income before minority interest and provision for income taxes..... 1,063 27,099 Minority interest in income of subsidiaries............................ 700 515 ---------- ---------- Income before provision for income taxes......................... 363 26,584 Provision for income taxes ............. 3,466 11,756 ---------- ---------- Net income (loss).................. $ (3,103) $ 14,828 ========== ========== Increase in carrying amount of redeemable preferred stock.............. 10,220 -- ---------- ---------- Net income (loss) available to common stockholders............................ $ (13,323) $ 14,828 ========== ========== Basic earnings (loss) per common share......................... $ (0.76) $ 0.05 ========== ========== Diluted earnings (loss) per common share......................... $ (0.76) $ 0.04 ========== ========== Shares used for computing basic earnings per share................... 17,524 318,390 ========== ========== Shares used for computing diluted earnings per share................... 17,524 365,325 ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. Page F-32
VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED) (IN THOUSANDS) 2001 2000 ---------- ---------- Cash flows from operating activities: Net income (loss) ................................... $ (3,103) $ 14,828 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization .................... 12,689 8,607 Amortization of debt discount and deferred financing costs ................................ 1,101 184 Interest paid in kind on senior notes ...... 8,066 -- Loss on sale of assets ..................... 870 -- Loss on write-down of assets ............... 7,967 -- Gain on sale of investment in VPI................. -- (3,200) Minority interest in income of subsidiaries ...... 700 516 Distributions to minority interest partners ...... (606) (697) Stock-based compensation...... ................... 382 -- Provision for uncollectible accounts ............. 1,363 1,666 Increase in accounts receivable, net ............. (3,437) (6,137) Decrease (increase) in inventory, prepaid expense and other assets ....................... 1,350 (1,494) Decrease in prepaid income taxes ................. 1,906 9,650 Increase in accounts payable and accrued liabilities..................................... 3,596 2,564 Changes in deferred revenue ...................... (1,000) -- Changes in deferred taxes ........................ 761 -- ---------- ---------- Net cash provided by operating activities ........ 32,605 26,487 ---------- ---------- Cash flows from investing activities: Property and equipment additions ................. (6,979) (9,799) Business acquisitions, net of cash acquired ...... (13,539) (5,590) Proceeds from sales of marketable securities, net -- (83,276) Investments in marketable securities, net......... -- 71,442 Proceeds from sale of real estate................. 370 -- Net proceeds from sale of investment in VPI ...... -- 8,200 Investment in Zoasis ............................. -- (5,000) Other ............................................ 57 85 ---------- ---------- Net cash used in investing activities .......... (20,091) (23,938) ---------- ---------- Cash flows from financing activities: Repayment of long-term obligations ............... (2,779) (12,360) Net payments related to recapitalization.......... (1,088) -- Proceeds from exercise of stock options .......... -- 290 ---------- ---------- Net cash used in financing activities ............ (3,867) (12,070) ---------- ---------- Increase (decrease) in cash and equivalents ........... 8,647 (9,521) Cash and equivalents at beginning of period ........... 10,519 10,620 ---------- ---------- Cash and equivalents at end of period ................. $ 19,166 $ 1,099 ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. Page F-33 VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (UNAUDITED) (1) GENERAL The accompanying unaudited condensed consolidated financial statements of Veterinary Centers of America, Inc. and subsidiaries (the "Company" or "VCA") have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements as permitted under applicable rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of operations for the six months ended June 30, 2001 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the Company's 2000 consolidated financial statements and footnotes thereto included in the Company's S-1 Registration Statement filed on August 9, 2001 with the SEC. (2) ACQUISITIONS During the second quarter of 2001, the Company purchased four animal hospitals, two of which were merged into existing VCA facilities, for an aggregate consideration (including acquisition costs) of $2.7 million, consisting of $2.4 million in cash, $320,000 in debt and the assumption of liabilities totaling $30,000. The $2.7 million aggregate purchase price was allocated as follows: $82,000 to tangible assets, $2.0 million to goodwill and $609,000 to other intangible assets. During the first quarter of 2001, the Company purchased nine animal hospitals, two of which were merged into existing VCA facilities for an aggregate consideration (including acquisition costs) of $11.9 million, consisting of $10.4 million in cash, $1.4 million in debt and the assumption of liabilities totaling $80,000. The $11.9 million aggregate purchase price was allocated as follows: $827,000 to tangible assets, $9.5 million to goodwill and $1.6 million to other intangible assets. (3) WRITE-DOWN OF ASSETS The Company periodically evaluates whether events, circumstances or net losses at the entity level have occurred that indicate the remaining estimated useful life of goodwill may warrant revision or that the remaining balance may not be recoverable. As a result of such analysis, the Company recorded a write-down of goodwill at one animal hospital in the amount of approximately $800,000 during 2001. Also during 2001, five animal hospitals were closed because their operating performance was unsatisfactory. The book value of the related goodwill and certain other assets that were determined to be unrecoverable of approximately $6.0 million was written off during 2001. During the six months ended June 30, 2001, the Company determined to sell three properties whose fair value was less than their respective book value. As a result of the items discussed above, a non-cash charge to operations in the amount of approximately $8.0 million was recorded in 2001. Page F-34 (4) CALCULATION OF PER SHARE AMOUNTS Below is a reconciliation of the income (loss) and shares used in the computations of the basic and diluted earnings (loss) per share ("EPS") (amounts in thousands, except per share amounts):
Six Months Ended June 30, 2001 2000 --------- --------- Net income (loss) .................. $ (3,103) $ 14,828 Increase in carrying amount of redeemable preferred stock ......... (10,220) -- Impact on conversion of debentures.. -- 1,376 --------- --------- Net income (loss) available to common shareholders (basic and diluted)...................... $(13,323) $ 16,204 ========= ========= Weighted average common shares outstanding: Basic ............................ 17,524 318,390 Effect of dilutive common shares: Stock options................... -- 10,080 Converted debentures............ -- 36,855 --------- --------- Diluted........................ 17,524 365,325 ========= ========= Earnings (loss) per share: Basic ............................ $ (0.76) $ 0.05 ========= ========= Diluted .......................... $ (0.76) $ 0.04 ========= =========
(5) COMPREHENSIVE INCOME (LOSS) Below is a calculation of comprehensive income (loss) (in thousands):
Six Months Ended June 30, 2001 2000 --------- -------- Net income (loss) ................... $ (3,103) $ 14,828 Decrease in the intrinsic value of the collar agreement............ (1,139) -- Decrease (increase) in unrealized loss on investment................. -- 261 --------- -------- Net comprehensive income (loss) ..... $ (4,242) $ 15,089 ========= ========
No income tax benefit related to the unrealized loss on investment was recognized due to the potential tax treatment of investment losses. See Footnote 8 "Derivatives", for additional information. Page F-35 (6) LINES OF BUSINESS During the six months ended June 30, 2001 and 2000, the Company had three reportable segments: Animal Hospital, Laboratory and Corporate. These segments are strategic business units that have different products, services and functions. The segments are managed separately because each is a distinct and different business venture with unique challenges, rewards and risks. The Animal Hospital segment provides veterinary services for companion animals and sells related retail products. The Laboratory segment provides testing services for veterinarians both associated with the Company and independent of the Company. Corporate provides selling, general and administrative support for the other segments and recognizes revenue associated with consulting agreements. The accounting policies of the segments are the same as those described in the summary of significant accounting policies as detailed in the Company's 2000 Financial Statements included in the Company's S-1 filing. The Company evaluates performance of segments based on profit or loss before income taxes, interest income, interest expense and minority interest, which are evaluated on a consolidated level. For purposes of reviewing the operating performance of the segments, all inter-company sales and purchases are accounted for as if they were transactions with independent third parties at current market prices. Below is a summary of certain financial data for each of the three segments (in thousands):
ANIMAL INTER-COMPANY HOSPITAL LABORATORY CORPORATE ELIMINATIONS TOTAL --------- ---------- --------- ------------- ----------- SIX MONTHS ENDED JUNE 30, 2001 Revenue....................... $ 137,134 $ 68,384 $ 1,000 $ (3,789) $ 202,729 Operating income (loss)....... 20,356 21,436 (9,211) -- 32,581 Depreciation/amortization expense....................... 7,142 2,304 3,243 -- 12,689 Capital expenditures.......... 4,578 878 1,523 -- 6,979 SIX MONTHS ENDED JUNE 30, 2000 Revenue....................... $ 119,267 $ 60,726 $ 425 $ (3,133) $ 177,285 Operating income (loss)....... 15,119 18,472 (4,992) -- 28,599 Depreciation/amortization expense....................... 5,949 2,207 451 -- 8,607 Capital expenditures.......... 7,750 980 1,069 -- 9,799 AT JUNE 30, 2001 Identifiable assets........... 317,192 112,080 60,457 -- 489,729 AT JUNE 30, 2000 Identifiable assets........... 291,758 112,361 42,770 -- 446,889 AT DECEMBER 31, 2000 Identifiable assets........... 312,473 109,453 61,144 -- 483,070
Page F-36 Below is a reconciliation between total segment operating income after eliminations and consolidated income (loss) before provision for income taxes as reported on the condensed consolidated statements of operations (in thousands):
Six Months Ended June 30, 2001 2000 -------- -------- Total segment operating income after eliminations......................... $ 32,581 $ 28,599 Write-down of assets ............. 7,967 -- Stock-based compensation ......... 382 -- -------- -------- Total reported operating income ..... 24,232 28,599 Net interest expense.............. 22,070 4,700 Other (income) expense ........... 1,099 (3,200) Minority interest................. 700 515 -------- -------- Income (loss) before provision for income taxes......................... $ 363 $ 26,584 ======== ========
(7) OTHER (INCOME) EXPENSE The components of other (income) expense are as follows: o LOSS ON SALE OF ASSETS - In 2001, the Company sold substantially all the assets of one animal hospital and a portion of real estate related to another animal hospital. Both sales were completed during the six months ended June 30, 2001 for aggregate cash proceeds of $370,000. In connection with these asset sales, the Company recorded a pre-tax loss of $870,000. o LOSS ON HEDGING INSTRUMENT - For the six months ended June 30, 2001, the Company incurred non-cash charges of $229,000 for changes in the time value of a collar agreement. See Footnote 8, "Derivatives", for additional information. o GAIN ON SALE OF VPI - The Company sold its investment in VPI and received $8.2 million in cash in February 2000, resulting in a one-time gain of approximately $3.2 million for the six months ended June 30, 2000. (8) DERIVATIVES Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities, (collectively referred to as "derivatives"). All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value with offsets to other comprehensive income or earnings, depending on the type of derivative and/or the underlying cause for the change in fair value. On November 13, 2000, the Company entered into a no-fee interest rate collar agreement with Wells Fargo Bank effective November 15, 2000 and expiring November 15, 2002 (the "collar agreement"). The collar agreement is based on LIBOR, pays out monthly, resets monthly and has a cap and floor notional amount of $62.5 million, with a cap rate of 7.5% and floor rate of 5.9%. The actual cash paid by the Company as a result of LIBOR rates being below the floor of the collar agreement are recorded as a component of earnings. As of June 30, 2001, the Company has paid $253,000 because of LIBOR rates being below the floor of 5.9%. These payments were all made during the six months ended June 30, 2001 and are included in interest expense. Page F-37 The Company's objective for entering into the collar agreement is to minimize the interest rate risks related to our variable rate debt. The collar agreement is considered a cash flow hedge. Because LIBOR rates at June 30, 2001 were below the floor rate in the collar agreement of 5.9% and are projected to remain below the floor rate through the term of the collar agreement, the fair value of the collar agreement is a net liability to the Company of $1.4 million at June 30, 2001. It is recorded in the Company balance sheet as part of other liabilities. The valuation of the collar agreement is the sum of the following: o Non-cash charges for the changes in the time value of the collar agreement were recorded as a component of other income and expense of $229,000 for the six months ending June 30, 2001. The cumulative effect of changes in the value of the collar agreement prior to adoption of SFAS 133 was immaterial. o A non-cash charge for the changes in the intrinsic value of the collar agreement resulting in a cumulative net charge of $1.1 million to other comprehensive income as of June 30, 2001. (9) STOCK-BASED COMPENSATION In connection with the Recapitalization, employee option holders were allowed to exchange their stock options for new stock options with the same intrinsic value. The stock option exchange offer resulted in variable accounting treatment for the new stock options. The Company engaged an appraisal firm to determine the fair value of its common stock as of June 30, 2001. The appraisal firm determined that the fair value of the Company's common stock was $1.55 per share, an increase from the $1.00 per share fair value at the time of the Recapitalization. The effect of the increase in the fair market value of the common stock on these stock options resulted in a charge of $382,000 in the six months ended June 30, 2001. The Company expects to offer loans to the employee new stock option holders to encourage exercise of the new stock options in July 2001. The variable accounting treatment will cease once the stock options are exercised. (10) ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, which changes the way companies account for intangible assets and goodwill associated with business combinations. The principal changes of SFAS No. 142 are as follows: o All goodwill amortization will cease effective January 1, 2002. For the six months ended June 30,2001, the Company recorded $4.5 million of goodwill amortization. o All of the goodwill on the Company's balance sheet at June 30, 2001 will continue to be amortized through the remaining months of 2001, under their current amortization schedules. o All goodwill acquired in acquisitions after June 30, 2001 will not be subject to amortization in 2001 or in the future. o All goodwill will be reviewed annually, or as circumstances warrant, using the fair-value-based goodwill impairment tests discussed in SFAS No. 142. As of June 30, 2001, our goodwill balance was $311.8 million. Any impairment recognized associated with the adoption of SFAS No. 142 will be accounted for as a cumulative effect of change in accounting principal. o All other intangible assets typically included in goodwill will be valued independently and amortized over their useful lives. For the Company these intangibles may include: Page F-38 o the value of names and addresses associated with customer lists, o the value of repeat sales in non-contractual customer relationships, and o the value of established business names. The impact of SFAS No. 142 on the Company's financial statements has not yet been determined. In July, 2001, the FASB issued SFAS No. 141, BUSINESS COMBINATIONS, which requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting. The Company does not expect the impact of SFAS No. 141 to have a material impact on its financials statements or its operations. (11) RECLASSIFICATIONS Certain 2000 balances have been reclassified to conform to the 2001 financial statement presentation. Page F-39 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table itemizes the expenses incurred by the Registrant in connection with the issuance and distribution of the Securities being registered, other than underwriting discounts. All the amounts shown are estimates except the Securities and Exchange Commission registration fee and the NASD filing fee. Registration fee--Securities and Exchange Commission........... $ 60,375 Filing fee - National Association of Securities Dealers, Inc... 24,650 Quotation fee - The Nasdaq National Market..................... 95,000 Accounting fees and expenses................................... 150,000 Legal fees and expenses (other than blue sky).................. 250,000 Blue sky fees and expenses, including legal fees............... 10,000 Printing; stock certificates................................... 200,000 Transfer agent and registrar fees.............................. 15,000 Miscellaneous.................................................. 50,000 ----------- Total.......................................................... $855,025 =========== ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Subsection (a) of Section 145 of the General Corporation Law of the State of Delaware, the "DGCL," empowers a corporation to indemnify any person who by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Subsection (b) of Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he acted in any of the capacities set forth above, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted under similar standards, except that no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 145 further provides that to the extent that a director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145, or in the defense of any claim, issue or matter therein, he shall be Page 1 indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith; that indemnification provided by, or granted pursuant to, Section 145 shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled; and empowers the corporation to purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or against another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such whether or not the corporation would have the power to indemnify him against such liabilities under Section 145. As permitted by Delaware law, our amended and restated certificate of incorporation, which is filed as Exhibit 3.1, provides that no director of ours will be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for the following: o for liability for any breach of duty of loyalty to us or to our stockholders; o for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; o for unlawful payment of dividends or unlawful stock repurchases or redemptions under Section 174 of the Delaware General Corporation Law; or o for any transaction from which the director derived an improper personal benefit. Our amended and restated certificate of incorporation further provides that we must indemnify our directors and executive officers and may indemnify our other officers and employees and agents to the fullest extent permitted by Delaware law. We believe that indemnification under our amended and restated certificate of incorporation covers negligence and gross negligence on the part of indemnified parties. Our by-laws, which is filed as Exhibit 3.2, provides us with the authority to indemnify our directors, officers and agents to the full extent allowed by Delaware law. We intend to enter into indemnification agreements, the form of which is filed as Exhibit 10.13, with each of our directors and officers. These agreements, among other things, will require us to indemnify each director and officer for certain expenses including attorneys' fees, judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by or in our right, arising out of the person's services as our director or officer, any subsidiary of ours or any other company or enterprise to which the person provides services at our request. The underwriting agreement will provide for indemnification by our underwriters, our directors, our officers who sign the registration statement, and our controlling persons for some liabilities, including liabilities arising under the Securities Act. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. In February 1999 and January 1998, we granted to Robert L. Antin, Arthur J. Antin, Neil Tauber, Tomas W. Fuller, Dawn Olsen and certain other of our employees restricted stock bonus awards to purchase an aggregate of 79,916 shares of common stock. These stock bonus awards have all been exercised. These shares were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act. As part of our recapitlization, on September 20, 2000 we made the following sales of unregistered securities: o Issued and sold 17,524,335 shares of our common stock at a purchase price per share of $1.00 for an aggregate purchase price of $17,524,335 to: Robert L. Antin; Arthur J. Antin; Neil Tauber; Page 2 Tomas W. Fuller; certain entities controlled by Leonard Green & Partners; and certain of our employees, some of whom are accredited and some of whom are unaccredited. These securities were issued in reliance on the exemption from registration provided by Regulation D, Rule 506. o Issued and sold 2,998,408 shares of 14% Series A Senior Redeemable Exchangeable Cumulative Preferred Stock at a price of $25.00 per share for an aggregate purchase price of approximately $75,000,000 to: Green Equity Investors III, L.P. and affiliated investment funds; GS Mezzanine Partners II, L.P. and affiliated investment funds; TCW Leveraged Income Trust, L.P. and affiliated investment funds; and The Northwestern Mutual Life Insurance Company. These securities were issued in reliance on the exemption from registration provided by Regulation D, Rule 506, of the Securities Act. o Issued and sold 2,970,822 shares of 12% Series B Junior Redeemable Cumulative Preferred Stock at a price of $25.00 per share for an aggregate purchase price of approximately $74,300,000 to: Green Equity Investors III, L.P. and affiliated investment funds; GS Mezzanine Partners II, L.P. and affiliated investment funds; TCW Leveraged Income Trust, L.P. and affiliated investment funds; and The Northwestern Mutual Life Insurance Company. These securities were issued in reliance on the exemption from registration provided by Regulation D, Rule 506, of the Securities Act. o Issued warrants to certain investors to purchase up to 1,149,990 shares of common stock. The warrants allow the holders to purchase the common shares at a price of $0.0007. These warrants were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act. o Sold $20.0 million in Senior Subordinated Notes due 2010 pursuant to an indenture of the same date with Chase Manhattan Bank and Trust Company, National Association, as trustee. These securities were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act. o Sold $100.0 million in Senior Notes due 2010 pursuant to an indenture of the same date with Chase Manhattan Bank and Trust Company, National Association, as trustee. These securities were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act. Page 3 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBIT NUMBER EXHIBIT DESCRIPTION 1.1 Form of Underwriting Agreement* 3.1 Form of Amended and Restated Certificate of Incorporation of Registrant 3.2 Form of Amended and Restated Bylaws of Registrant 4.1 Stockholders Agreement by and among Registrant, Green Equity Investors III, L.P., Co-Investment Funds and Stockholders. 4.2 Amendment No. 1 to Stockholders Agreement by and among Registrant, Green Equity Investors III, L.P., GS Mezzanine Partners II. L.P. and Robert L. Antin.* 4.3 Indenture Agreement, dated as of September 20, 2000, by and between Registrant and Chase Manhattan Bank and Trust Company, National Association. 4.4 Indenture Agreement, dated as of September 20, 2000, by and among Vicar Operating, Inc., Chase Manhattan Bank and Trust Company, National Association, with Registrant and its subsidiaries as Guarantors. 4.5 Credit and Guaranty Agreement, dated as of September 20, 2000, by and among Registrant, Vicar Operating, Inc., certain subsidiaries of Registrant as Guarantors, Goldman Sachs Credit Partners L.P. and Wells Fargo Bank, National Association as Administrative and Collateral Agent. 5.1 Opinion of Akin, Gump, Strauss, Hauer & Feld, LLP, regarding validity of securities.* 10.1 Employment Agreement by and between Registrant and Robert L. Antin.* 10.2 Employment Agreement by and between Registrant and Arthur J. Antin.* 10.3 Employment Agreement by and between Registrant and Tomas W. Fuller.* 10.4 Employment Agreement by and between Registrant and Neil Tauber.* 10.5 Non-Compete Agreement, dated as of September 20, 2000, by and between Registrant and Robert L. Antin. 10.6 Non-Compete Agreement, dated as of September 20, 2000, by and between Registrant and Arthur J. Antin. 10.7 Non-Compete Agreement, dated as of September 20, 2000, by and between Registrant and Tomas W. Fuller. 10.8 Non-Compete Agreement, dated as of September 20, 2000, by and between Registrant and Neil Tauber. 10.9 Amended and Restated 1996 Stock Incentive Plan* 10.10 2001 Stock Incentive Plan* 10.11 Corporate Headquarters Lease, dated as of August 1, 1999, by and between Registrant and Werner Wolfen, Michael Duritz, Nancy Bruch, Dorothy A. Duritz, Harvey Rosenberg and Judy Rosenberg (Landlords).* 10.12 Management Services Agreement, dated as of September 20, 2000, by and among Registrant, Vicar Operating, Inc. and Leonard Green and Partners, L.P. 10.13 Form of Indemnification Agreement 10.14 Amended and Restated Agreement and Plan of Merger, dated as of August 11, 2000, by and among Registrant, Vicar Operating, Inc. and Vicar Recap, Inc. 21.1 List of Subsidiaries of Registrant 23.1 Consent of Arthur Andersen LLP 23.2 Consent of Akin, Gump, Strauss, Hauer & Feld, LLP (Set forth in Exhibit 5.1) 24.1 Power of Attorney (Set forth on signature page) ----------------------------------- * To be filed by amendment. (B) Financial Statement Schedules: - Report of Independent Public Accountants - Schedule II - Valuation and Qualifying Accounts Page 4 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Veterinary Centers of America, Inc. We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of Veterinary Centers of America, Inc. and subsidiaries included in this registration statement and have issued our report thereon dated March 28, 2001. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II - Valuation and Qualifying Accounts is the responsibility of the company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Los Angeles, California March 28, 2001 Page 5
SCHEDULE II VETERINARY CENTERS OF AMERICA, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN THOUSANDS) Balance at Charged to Balance beginning costs and at end OF PERIOD EXPENSES WRITE-OFFS OTHER (1) OF PERIOD --------- -------- ---------- --------- --------- Year ended December 31, 2000 Allowance for uncollectible accounts (2)... $ 7,432 $ 3,105 $ (6,771) $ 407 $ 4,173 Year ended December 31, 1999 Allowance for uncollectible accounts (2)... $ 6,532 $ 2,515 $ (2,252) $ 637 $ 7,432 Year ended December 31, 1998 Allowance for uncollectible accounts (2)... $ 5,128 $ 2,898 $ (1,831) $ 337 $ 6,532 (1) "Other" changes in the allowance for uncollectible accounts include allowances acquired with Animal Hospitals and Laboratories acquisitions. (2) Balance includes allowance for trade accounts receivable and notes receivable.
Page 6 ITEM 17. UNDERTAKINGS. (a) The undersigned Registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer of controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by a controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (c) The undersigned registrant hereby undertakes that: (1) For the purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the Offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Page 7 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 7, 2001. /S/ ROBERT L. ANTIN ----------------------------- By: Robert L. Antin POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Robert L. Antin and Tomas W. Fuller, and each of them, as his true and lawful attorneys-in-fact and agents with full power of substitution and re-substitution, for him and his name, place and stead, in any and all capacities, to sign any or all amendments (including post effective amendments) to this Registration Statement and a new Registration Statement filed pursuant to Rule 462(b) of the Securities Act and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates stated.
SIGNATURE TITLE DATE /S/ ROBERT L. ANTIN - --------------------------- Chairman of the Board, President Robert L. Antin and Chief Executive Officer August 7, 2001 - --------------------------- Director, Chief Operating Officer, August _, 2001 Arthur J. Antin Senior Vice President and Secretary /S/ TOMAS W. FULLER Chief Financial Officer, August 7, 2001 - --------------------------- Principal Accounting Officer, Vice Tomas W. Fuller President and Assistant Secretary /S/ JOHN M. BAUMER - --------------------------- August 7, 2001 John M. Baumer Director /S/ JOHN G. DANHAKL - --------------------------- August 7, 2001 John G. Danhakl Director - --------------------------- Melina Higgins Director August _, 2001 /S/ PETER J. NOLAN - --------------------------- Peter J. Nolan Director August 7, 2001
Page 8 LIST OF EXHIBITS EXHIBIT NUMBER EXHIBIT DESCRIPTION 1.1 Form of Underwriting Agreement* 3.1 Form of Amended and Restated Certificate of Incorporation of Registrant 3.2 Form of Amended and Restated Bylaws of Registrant 4.1 Stockholders Agreement by and among Registrant, Green Equity Investors III, L.P., Co-Investment Funds and Stockholders. 4.2 Amendment No. 1 to Stockholders Agreement by and among Registrant, Green Equity Investors III, L.P., GS Mezzanine Partners II. L.P. and Robert L. Antin.* 4.3 Indenture Agreement, dated as of September 20, 2000, by and between Registrant and Chase Manhattan Bank and Trust Company, National Association. 4.4 Indenture Agreement, dated as of September 20, 2000, by and among Vicar Operating, Inc., Chase Manhattan Bank and Trust Company, National Association, with Registrant and its subsidiaries as Guarantors. 4.5 Credit and Guaranty Agreement, dated as of September 20, 2000, by and among Registrant, Vicar Operating, Inc., certain subsidiaries of Registrant as Guarantors, Goldman Sachs Credit Partners L.P. and Wells Fargo Bank, National Association as Administrative and Collateral Agent. 5.1 Opinion of Akin, Gump, Strauss, Hauer & Feld, LLP, regarding validity of securities.* 10.1 Employment Agreement by and between Registrant and Robert L. Antin.* 10.2 Employment Agreement by and between Registrant and Arthur J. Antin.* 10.3 Employment Agreement by and between Registrant and Tomas W. Fuller.* 10.4 Employment Agreement by and between Registrant and Neil Tauber.* 10.5 Non-Compete Agreement, dated as of September 20, 2000, by and between Registrant and Robert L. Antin. 10.6 Non-Compete Agreement, dated as of September 20, 2000, by and between Registrant and Arthur J. Antin. 10.7 Non-Compete Agreement, dated as of September 20, 2000, by and between Registrant and Tomas W. Fuller. 10.8 Non-Compete Agreement, dated as of September 20, 2000, by and between Registrant and Neil Tauber. 10.9 Amended and Restated 1996 Stock Incentive Plan* 10.10 2001 Stock Incentive Plan* 10.11 Corporate Headquarters Lease, dated as of August 1, 1999, by and between Registrant and Werner Wolfen, Michael Duritz, Nancy Bruch, Dorothy A. Duritz, Harvey Rosenberg and Judy Rosenberg (Landlords).* 10.12 Management Services Agreement, dated as of September 20, 2000, by and among Registrant, Vicar Operating, Inc. and Leonard Green and Partners, L.P. 10.13 Form of Indemnification Agreement 10.14 Amended and Restated Agreement and Plan of Merger, dated as of August 11, 2000, by and among Registrant, Vicar Operating, Inc. and Vicar Recap, Inc. 21.1 List of Subsidiaries of Registrant 23.1 Consent of Arthur Andersen LLP 23.2 Consent of Akin, Gump, Strauss, Hauer & Feld, LLP (Set forth in Exhibit 5.1) 24.1 Power of Attorney (Set forth on signature page) ----------------------------------- * To be filed by amendment. Page 9 EX-3 3 ex-3_1.txt EXHIBIT 3.1 - AMENDED AND RESTATED CERT OF INCORP. EXHIBIT 3.1 FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF VCA ANTECH INCORPORATED VCA Antech Incorporated, a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify: 1. The name of the Corporation is VCA Antech Incorporated. VCA Antech Incorporated was originally incorporated under Veterinary Centers of America, Inc., and the original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on May 4, 1987. 2. In accordance with Sections 141(f), 228(a), 242 and 245 of the General Corporation Law of the State of Delaware, the Board of Directors and the Stockholders of the Corporation by written consent dated __________, 2001, duly adopted and approved resolutions amending and restating the Corporation's Certificate of Incorporation, declaring such amendment and restatement advisable. 3. This Amended and Restated Certificate of Incorporation of the Corporation restates and integrates and further amends the provisions of the Certificate of Incorporation of the Corporation. The text of the Certificate of Incorporation as heretofore amended or supplemented is hereby amended and restated to read in its entirety as follows: FIRST: The name of this corporation is VCA Antech Incorporated (the "Corporation"). SECOND: The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may now or hereafter be organized under the General Corporation Law of the State of Delaware as set forth in Title 8 to the Delaware Code (the "GCL"). FOURTH: The Corporation is authorized to issue two classes of shares, designated "Preferred Stock" and "Common Stock." The total number of shares which the Corporation shall have authority to issue is 75,000,000 of which 70,000,000 shares shall be Common Stock, par value $.0l per share and 5,000,000 shares shall be Preferred Stock, par value $.01 per share. Shares of Preferred Stock authorized by this Amended and Restated Certificate of Incorporation may be issued from time to time in one or more series. For any wholly unissued series of Preferred Stock, the Board of Directors of the Corporation (the "Board of Directors") is authorized to fix or alter the rights, preferences, privileges and restrictions granted to or imposed upon wholly unissued series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or any of them. For any series of Preferred Stock having issued and outstanding shares, the Board of Directors is also authorized to increase or decrease the number of shares of any series of Preferred Stock prior or subsequent to the issuance of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status of undesignated Preferred Stock. Each holder of Common Stock, as such, shall be entitled to one vote for each share of Common Stock held of record by such holder on all matters on which stockholders generally are entitled to vote; PROVIDED, HOWEVER, that, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Amended and Restated Certificate of Incorporation (including any Certificate of Designation relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Amended and Restated Certificate of Incorporation (including any Certificate of Designation relating to any series of Preferred Stock) or pursuant to the GCL. In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the affairs of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation and of the preferential amounts, if any, to which the holders of Preferred Stock shall be entitled, the holders of all outstanding shares of Common Stock shall be entitled to share ratably in the remaining net assets of the Corporation. Subject to the preferential rights, if any, of the Preferred Stock, the holders of shares of Common Stock shall be entitled to receive, when and if declared by the Board of Directors, out of the assets of the Corporation which are by law available therefore, dividends payable either in cash, in property, or in shares of Common Stock. FIFTH: The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by this Amended and Restated Certificate of Incorporation or the bylaws of the Corporation, the Board of Directors is hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. Election of directors need not be by written ballot unless the bylaws so provide. SIXTH: The Board of Directors is authorized to make, adopt, amend, alter or repeal the bylaws of the Corporation. The stockholders shall also have power to make, adopt, amend, alter or repeal the bylaws of the Corporation. SEVENTH: To the fullest extent permitted by the GCL as the same exists or may hereafter be amended, a director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damage for breach of fiduciary duty as a director. If the GCL is amended after the date of the filing of this Amended and Restated Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the GCL, as so amended from time to time. No amendment or repeal of this Article shall adversely affect any right or protection of a director of the Corporation provided hereunder with respect to any act or omission occurring prior to such amendment or repeal. The Corporation shall indemnify to the fullest extent permitted by the GCL as the same exists or may hereafter be amended, any person made, or threatened to be made, a defendant or witness to any action, suit or proceeding (whether civil or criminal or otherwise) by reason of the fact that such person, or his or her testator or intestate, is or was a director, officer, employee or Page 2 agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or enterprise. Nothing contained herein shall affect any rights to indemnification to which any person may be entitled by law. No amendment or repeal of this Article shall adversely affect any right to indemnification provided hereunder with respect to any act or omission occurring prior to such amendment or repeal. In furtherance and not in limitation of the powers conferred by statute: (i) this Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer, employee or agent of the Corporation, or is serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify against such liability under the provisions of law; and (ii) this Corporation may create a trust fund, grant a security interest and/or use other means (including, without limitation, letters of credit, surety bonds and/or other similar arrangements), as well as enter into contracts providing indemnification to the full extent authorized or permitted by law and including as part thereof provisions with respect to any or all of the foregoing to ensure the payment of such amounts as may become necessary to effect indemnification as provided therein, or elsewhere. Any repeal or modification of the foregoing provisions of this Article by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. EIGHTH: The stockholders of the Corporation may not take action by written consent in lieu of a meeting but must take any such action at a duly called annual or special meeting. Special meetings of the stockholders of the Corporation for any purpose or purposes may be called only by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President of the Corporation. NINTH: The number of directors which constitute the entire Board of Directors shall be as specified in the bylaws of the Corporation. At each annual meeting of stockholders, directors of the Corporation shall be elected to hold office until the expiration of the term of which they are elected and until their successors have been duly elected and qualified; except that if any such election shall not be so held, such election shall take place at a stockholders' meeting called and held in accordance with the GCL. Effective as of the date of the first regularly scheduled annual meeting of the stockholders following the date (the "Effective Date") on which the Corporation first becomes subject to the periodic and other reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended, the directors of the Corporation shall be divided into three classes as nearly equal in size as is practicable, hereby designated Class I, Class II and Class III. The term of office of the initial Class I directors shall expire at the second annual meeting of the stockholders following the Effective Date, the term of office of the initial Class II directors shall expire at the third annual meeting of the stockholders following the Effective Date and the term of office of the initial Class III directors shall expire at the fourth annual meeting of the stockholders following the Effective Page 3 Date. At each annual meeting of stockholders, commencing with the second regularly-scheduled annual meeting of stockholders following the Effective Date, each of the successors elected to replace the directors of a Class whose term shall have expired at such annual meeting shall be elected to hold office until the third annual meeting next succeeding his or her election and until his or her respective successor shall have been duly elected and qualified. If the number of directors is hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as is practicable, provided that no decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Any director may be removed from office by the stockholders of the Corporation only for cause. Vacancies occurring on the Board of Directors for any reason and newly created directorships resulting from an increase in the authorized number of directors may be filled only by vote of a majority of the remaining members of the Board of Directors, although less than a quorum, at any meeting of the Board of Directors. A person so elected by the Board of Directors to fill a vacancy or newly created directorship shall hold office until the next election of the Class for which such director shall have been chosen and until his or her successor shall have been duly elected and qualified. TENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute and all rights conferred upon stockholders herein are granted subject to this reservation. Notwithstanding any other provision of this Amended and Restated Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote, but in addition to any vote of the holders of any class or series thereof of the stock of this Corporation required by law of this Amended and Restated Certificate of Incorporation, the affirmative vote of the holders of at least two-thirds (2/3) of the combined voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend, repeal or adopt any provision contained in this Amended and Restated Certificate of Incorporation which is inconsistent with (i) Article SIXTH, (ii) Article EIGHTH, (iii) Article NINTH, and (iv) this Article TENTH. Page 4 IN WITNESS WHEREOF, the undersigned has duly executed this Amended and Restated Certificate of Incorporation in the name and on behalf of VCA Antech Incorporated on the __th day of ___________ 2001, and the statements contained herein are affirmed as true under penalty of perjury. ------------------------------------- Robert L. Antin Chief Executive Officer and President Page 5 EX-3 4 ex-3_2.txt EXHIBIT 3.2 - AMENDED AND RESTATED BYLAWS EXHIBIT 3.2 FORM OF AMENDED AND RESTATED BYLAWS OF VCA ANTECH, INC. A DELAWARE CORPORATION (THE "CORPORATION") AS OF ______ __, 2001 ARTICLE I CORPORATE OFFICES Section 1 REGISTERED OFFICE. The registered office of the Corporation in the State of Delaware is located at 1209 Orange Street, in the City of Wilmington, County of Newcastle. Section 2 PRINCIPAL OFFICE. The principal office of the Corporation is located at 12401 West Olympic Boulevard, Los Angeles, California 90064-1022. The Board of Directors (herein referred to as the "Board") is hereby granted the full power and authority, by a resolution of a majority of the directors, to change the principal office from one location to another. Section 3 OTHER OFFICES. The Corporation may establish any additional offices, at any place or places, as the Board may designate, or as the business of the Corporation shall require. ARTICLE II STOCKHOLDERS MEETINGS Section 1 PLACE OF MEETING. Meetings of the Stockholders shall be held at the principal offices of the Corporation or at such place, within or without the State of Delaware, as may from time to time be designated for that purpose, by the Board. Section 2 ANNUAL MEETINGS. Annual meetings of stockholders shall be held at a place and time on any weekday which is not a holiday and which is not more than 120 days after the end of the fiscal year of the Company as shall be designated by the Board and stated in the notice of the meeting, at which the stockholders shall elect the directors of the Company and transact such other business as may properly be brought before the meeting. Section 3 SPECIAL MEETINGS. Special meetings of the Stockholders, for any purpose or purposes prescribed in the notice of the meeting, may be called only (i) by the Board pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption) or (ii) by the Chairman of the Board, the President, or the Chief Executive Officer if made by a written request to the Board and shall be held at such place, on such date, and at such time as the Board shall fix. Business transacted at special meetings shall be confined to the purpose or purposes stated in the notice. Section 4 NOTICE OF MEETINGS. Except as otherwise provided by the DGCL, as that term is defined in Section 9 of Article VI, written notice of each meeting of the Stockholders, whether annual or special, shall be given not less than 10 nor more than 60 days prior to the date upon which the meeting is to be held to each Stockholder entitled to vote at such meeting. Such notice shall be deemed delivered when deposited in the United States mail, postage prepaid, addressed to the Stockholder at such person's address as it appears on the stock records of the Corporation, or otherwise actually delivered to such address or such person. Such notice shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. If a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Stockholder of record entitled to vote at the meeting. Section 5 QUORUM. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, at each meeting of Stockholders the presence in person or by proxy of the holders of shares of stock having a majority of the votes which could be cast by the holders of all outstanding shares of stock entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum. In the absence of a quorum, any meeting of the Stockholders may be adjourned from time to time by the chairman of the meeting or a majority of the votes represented either in person or by proxy, and no other business may be transacted at a meeting except that the Stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough Stockholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. Section 6 ADJOURNED MEETING. Any Stockholders' meeting, annual or special, whether or not a quorum is present, may be adjourned by the chairman of the meeting or by a vote of a majority of the shares present, either in person or by proxy. At any adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. Section 7 CHAIRMAN OF MEETING; OPENING OF POLLS. Meetings of Stockholders shall be presided over by the person designated by the Board, or in the absence of such designation, by the Chairman of the Board, if any, or in his absence by the Vice Chairman of the Board, if any, or in his absence by the Chief Executive Officer, or in their absence by a chairman chosen at the meeting by the Stockholders. The Secretary shall act as secretary of the meeting, but in his absence, the chairman of the meeting may appoint any person to act as secretary of the meeting. The chairman of the meeting shall announce at each meeting of Stockholders the date and time of the opening of the polls for each matter upon which the Stockholders will vote. Section 8 PROXIES. Each Stockholder entitled to vote at a meeting of Stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such person by proxy. Section 9 STOCKHOLDER LIST. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of Stockholders, a complete list of the Stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each Stockholder and the number of shares registered in the name of each Stockholder. Such list shall be open to the examination of any Stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be Page 2 specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Stockholder who is present. Section 10 NO CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. The Stockholders of the Corporation may not take action by written consent in lieu of a meeting but must take action at a duly called annual or special meeting, as described in this Article II. Section 11 INSPECTORS OF ELECTION. In advance of any meeting of the Stockholders, the Board shall appoint at least one person, other than nominees for office, as inspectors of election, to act at such meeting or any adjournment thereof. The number of such inspectors of election shall be one or three. In case any person appointed as inspector fails to appear or refuses to act, the vacancy shall be filled by appointment by the Board in advance of the meeting, or at the meeting by the chairman of the meeting. The duties of each such inspector shall include: determining the number of shares outstanding and voting power of each; determining the shares represented at the meeting; determining the existence of a quorum; determining the authenticity, validity and effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; retaining for a reasonable period the disposition of any challenges made to the inspector's determinations; counting and tabulating all votes; determining when the polls shall close; determining the result of any election; certifying the determination of the number of shares represented at the meeting, and the count of all votes and ballots; certifying any information considered in determining the validity and counting of proxies and ballots if that information is used for the purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the Stockholder holds of record; and performing such acts as may be proper to conduct the election or vote with fairness to all Stockholders. An announcement shall be made at each meeting of the Stockholders by the chairman of the meeting of the date and time of the opening and closing of polls for each matter upon which the Stockholders will vote at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Delaware Court of Chancery upon application by a Stockholder shall determine otherwise. Unless otherwise provided in the Certificate of Incorporation or these Bylaws, this Section 11 shall not apply to the Corporation if the Corporation does not have a class of voting stock that is: (a) listed on a national securities exchange; (b) authorized for quotation on an interdealer quotation system of a registered national securities association; or (c) held of record by more than 2,000 Stockholders. Section 12 RECORD DATE. In order that the Corporation may determine the Stockholders entitled to notice of or to vote at any meeting of Stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in Page 3 respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. If no record date is fixed: (a) The record date for determining Stockholders entitled to notice of or to vote at a meeting of Stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (b) The record date for determining Stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is expressed; (c) The record date for determining Stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. A determination of Stockholders of record entitled to notice of or to vote at a meeting of Stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. Section 13 CONDUCT OF MEETINGS. The Board may adopt such rules and regulations for the conduct of meetings of Stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board, the chairman of any meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of the chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to Stockholders of record, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to meeting after the time fixed for commencement thereof; (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board or the chairman of meeting, meetings of Stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. Section 14 EXCEPTION TO REQUIREMENTS OF NOTICE. No notice is required to be given to any Stockholder under the Certificate of Incorporation or these Bylaws if under Section 230 of the DGCL no such notice is required to be given. Section 15 MATTERS CONSIDERED AT ANNUAL MEETING. At an annual meeting of the Stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (b) otherwise properly brought before the meeting by or at the direction of the Board, or (c) otherwise properly brought before the meeting by a Stockholder. For business to be properly brought before Page 4 an annual meeting by a Stockholder, the Stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a Stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than 60 days nor more than 90 days prior to the meeting; PROVIDED, HOWEVER, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to the Stockholders, notice by the Stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A Stockholder's notice to the Secretary shall set forth as to each matter the Stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the Stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the Stockholder, and (d) any material interest of the Stockholder in such business. Notwithstanding anything in the By-laws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section. The chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this section and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 16 NOMINATIONS FOR DIRECTOR . Only persons who are nominated in accordance with the procedures set forth in this Section shall be eligible for election as Directors. Nominations of persons for election to the Board may be made at a meeting of Stockholders by or at the direction of the Board or by any Stockholder entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section. Such nominations, other than those made by or at the direction of the Board shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a Stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting PROVIDED, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to the Stockholders, notice by the Stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such Stockholder's notice shall set forth (a) as to each person whom the Stockholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Corporation which are beneficially owned by such person, and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such persons' written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); and (b) as to the Stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such Stockholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such Stockholder. At the request of the Board any person nominated by the Board for election as a Director shall furnish to the Secretary of the Corporation that information required to be set forth in a Stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a Director of the Corporation unless nominated in accordance with the procedures set Page 5 forth in this Section. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. ARTICLE III BOARD OF DIRECTORS Section 1 POWERS. The business and affairs of the Corporation shall be managed by, or under the direction of the Board, except as may be otherwise provided by the DGCL or in the Certificate of Incorporation or these Bylaws. Section 2 NUMBER. The Board shall consist of one or more members, the number thereof to be determined from time to time by resolution of the Board. Section 3 PLACE OF MEETING. Unless otherwise provided in the Certificate of Incorporation, meetings, both regular and special, of the Board shall be held at the Corporation's principal executive offices, or at such other place or places as the Board or the Chairman of the Board may from time to time determine. Section 4 REGULAR MEETINGS. Immediately following each annual meeting of the Stockholders the Board shall hold a regular meeting at the same place at which such Stockholders' meeting is held, or any other place as may be fixed from time to by the Board or the Chairman of the Board. Notice of such meeting need not be given. Other regular meetings of the Board shall be held without call at such time as the Board may from time to time determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day not a legal holiday. Notice of a regular meeting need not be given. Section 5 SPECIAL MEETINGS. Except as otherwise provided in the Certificate of Incorporation, special meetings of the Board for any purpose or purposes may be called at any time by the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer or by any two directors. Written notice of the time and place of special meetings shall be delivered personally to each director or communicated to each director by telephone or telegraph or telex or cable or mail or electronic mail or other form of recorded communication, charges prepaid, addressed to each director at that director's address as it is shown on the records of the Corporation or, if it is not so shown on such records or is not readily ascertainable, at that director's residence or usual place of business. In case such notice is mailed, it shall be deposited in the United States mail at least three days prior to the time of the holding of the meeting. In case such notice is delivered personally, by telephone or by other form of written communication, it shall be delivered at least 24 hours before the time of the holding of the meeting. The notice shall state the time of the meeting, but need not specify the place of the meeting if the meeting is to be held at the principal executive office of the Corporation. The notice need not state the purpose of the meeting unless expressly provided otherwise by statute. Page 6 Section 6 MEETINGS BY COMMUNICATION EQUIPMENT. Members of the Board, or any committee designated by the Board, may participate in a meeting of the Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this Section shall constitute presence in person at such meeting. Section 7 QUORUM AND MANNER OF ACTING. The presence of a majority of the total number of directors shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time until a quorum is present. Notice of an adjourned meeting need not be given. Section 8 ACTION WITHOUT MEETING. Any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 9 COMPENSATION OF DIRECTORS. The Board may fix the compensation of directors. Section 10 COMMITTEES. The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent permitted by law and to the extent authorized by the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. The Board may remove any director from a committee with or without cause at any time. ARTICLE IV OFFICERS Section 1 OFFICERS. The Board may elect such officers with such titles as the Board deems advisable. Each officer shall have the powers and duties set forth in these Bylaws and any resolution of the Board appointing such officer (to the extent such resolution is not inconsistent with these Bylaws), and to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board. The Board may designate two or more persons as Chairman of the Board, in which case each shall be a Co-Chairman of the Board. Each such officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Subject to contractual obligations to the Company, any officer may resign at any time upon written notice to the Corporation. The Board may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. One person may hold any number of offices. Page 7 Section 2 CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an officer be elected, shall, if present, preside at all meetings of the Board and exercise and perform such other powers and duties as may be from time to time assigned to such person by the Board. Section 3 CHIEF EXECUTIVE OFFICER. Subject to such supervisory powers, if any, as may be given by the Board to the Chairman of the Board, the Chief Executive Officer, if such an officer be elected, shall, subject to the control of the Board, have general supervision, direction and control of the business and the officers of the Corporation. The Chief Executive Officer shall exercise and perform such other powers and duties as may be from time to time assigned to such person by the Board, consistent with such person's position as Chief Executive Officer. The Board may designate two or more persons as Chief Executive Officer, in which case each shall have the title Chief Executive Officer or Co-Chief Executive Officer, as specified by the Board. Section 4 PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board to the Chairman of the Board and the Chief Executive Officer, if there be such officers, the President shall be the chief operating officer of the Corporation and shall, subject to the control of the Board, have general supervision, direction, and control of the business and the officers of the Corporation (other than the Chairman and Chief Executive Officer). The President shall have the general powers and duties of management usually vested in the office of president and general manager of a Corporation, and shall have such other powers and duties as may be prescribed by the Board and the Chief Executive Officer. Section 5 VICE PRESIDENTS. In the absence or disability of the Chairman, the Chief Executive Officer and the President, the Vice Presidents, if any, in order of their rank as fixed by the Board, or, if not ranked, the Vice President designated by the Board shall perform all the duties of such officer, and when so acting shall have all the powers of, and be subject to all the restrictions upon, such offices. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board, the Chief Executive Officer or the President. Section 6 SECRETARY. The Secretary shall keep, or cause to be kept, at the principal executive office or such other place as the Board may direct, a book of minutes of all meetings and actions of directors, committees of directors, and Stockholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice given, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at Stockholders' meetings, and the proceedings. The Secretary shall give, or cause to be given, notice of all meetings of the Stockholders and of the Board required by the Bylaws or by law to be given, and he shall keep the seal of the Corporation, if one be adopted, in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board. Section 7 CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares, and shall send or cause to be sent to the Stockholders of the Corporation such financial statements and reports as are by law or these Bylaws required to be sent to them. Page 8 The Chief Financial Officer shall deposit all monies and other valuables in the name or to the credit of the Corporation with such depositories as may be designated by the Board or by an officer, if such authority is delegated by the Board. The Chief Financial Officer shall disburse the funds of the Corporation as may be ordered by the Board, shall render to the President and directors, whenever they request it, an account of all transactions undertaken as Chief Financial Officer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board. ARTICLE V INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS Section 1 AGENTS, PROCEEDINGS AND EXPENSES. For the purposes of this Article V, "agent" means any person who is or was a director, officer, employee or other agent of the Corporation, or is or was a director, officer, employee or other agent of the Corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation; "proceeding" means any threatened, pending or complete action or proceeding, whether civil, criminal, administrative, or investigative; and "expenses" includes, without limitation, attorneys' fees and any expenses of establishing a right to indemnification under Section 2 or Section 3 of this Article V. Section 2 ACTIONS OTHER THAN BY THE CORPORATION. The Corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contender or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person's conduct was unlawful. Section 3 ACTIONS BY THE CORPORATION. The Corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably Page 9 believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of such person's duty to the Corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. Section 4 SUCCESSFUL DEFENSE BY AGENT. To the extent that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 2 and 3 of this Article V, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. Section 5 REQUIRED APPROVAL. Any indemnification under Sections 1 and 2 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in Sections 2 and 3 of this Article V. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (a) by a majority vote of the members of the Board who are not parties to such action, suit or proceeding, even though less than a quorum, or (b) by a committee of such disinterested directors designated by majority vote of such disinterested directors, even though less than a quorum, or (c) if there are no such disinterested directors, or if such disinterested directors so direct, by independent legal counsel in a written opinion, or (d) by the affirmative vote of a majority of Stockholders. Section 6 ADVANCE OF EXPENSES. The Corporation may, in its discretion, pay the expenses (including attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding, in advance of the final disposition of such action, suit or proceeding, provided, however, that the payment of expenses incurred by a director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by or on behalf of such director or officer to repay all amounts advanced if it should ultimately be determined that the director or officer is not entitled to be indemnified by the Corporation as authorized in this Article V or otherwise. Such expenses (including attorneys' fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Corporation deems appropriate. Section 7 CONTRACTUAL RIGHTS. The indemnification and advancement of expenses provided by, or granted pursuant to, the other sections of this Article V shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of Stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office and shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Page 10 Section 8 LIMITATIONS. No indemnification or advance shall be made under this Article V, except as provided in Section 4, in any circumstances where it appears: (a) That it would be inconsistent with a provision of the Certificate of Incorporation, a resolution of the Stockholders or an agreement in effect at the time of accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. Section 9 INSURANCE. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article V.. Section 10 EFFECT OF AMENDMENT. Any amendment, repeal or modification of any provision of this Article V by the Stockholders or the directors of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such amendment, repeal or modification. Section 11 CONSTITUENT CORPORATIONS. For purposes of this Article V, references to "the Corporation" shall include, in addition to the Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article V with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. Section 12 DEFINITIONS. For purposes of this Article V, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article V. Page 11 ARTICLE VI MISCELLANEOUS Section 1 INSPECTION OF BOOKS AND RECORDS BY STOCKHOLDERS. Any Stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Corporation's stock ledger, a list of its Stockholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a Stockholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the Stockholder. The demand under oath shall be directed to the Corporation at its registered office in the State of Delaware or at its principal place of business. Section 2 INSPECTION OF BOOKS AND RECORDS BY DIRECTORS. Any director shall have the right to examine the Corporation's stock ledger, a list of its Stockholders and its other books and records for a purpose reasonably related to such person's position as a director. Such right to examine the records and books of the Corporation shall include the right to make copies and extract therefrom. Section 3 CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts, or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by the Board. In the absence of such determination, the Chief Executive Officer, the President, the Chief Operating Officer and the Chief Financial Officer shall have the authority to sign or endorse such instruments and documents. Section 4 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board, except as otherwise provided in these Bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and such person's authority may be general or confined to specific instances; and, unless so authorized or ratified by the Board or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or agreement or to pledge its credit or to render it liable for any purpose or for any amount. In the absence of specific resolution of the Board relating to the authority of officers to execute contracts generally, the Chief Executive Officer, the President, the Chief Operating Officer and the Chief Financial shall have the authority to execute contracts of the Corporation. Section 5 CERTIFICATES FOR SHARES. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by the Chairman or the President or a Vice-President, and by the Chief Financial Officer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation representing the number of shares owned by such person in the Corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Page 12 Section 6 TRANSFER OF SHARES. Transfers of shares of the capital stock of the Corporation shall be made only on the books of the Corporation by the holder thereof, or by such person's attorney thereunto authorized by a power of attorney duly executed and filed with the Secretary of the Corporation or a transfer agent of the Corporation, if any, and on surrender of the certificate or certificates for such shares properly endorsed. A person in whose name appears on shares of stock and on the books of the Corporation shall be deemed the owner thereof as regards the Corporation, and upon any transfer of shares of stock the person or persons into whose name or names such shares shall have been transferred, shall enjoy and bear all rights, privileges and obligations of holders of stock of the Corporation and as against the Corporation or any other person or persons. The term "person" or "persons" wherever used herein shall be deemed to include any partnership, corporation, association or other entity. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact, if known to the Secretary or to such transfer agent, shall be so expressed in the entry of transfer. Section 7 LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such person's legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 8 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer or any person designated by any of such officers is authorized, in the absence of authorization by the Board, to vote on behalf of the Corporation any and all shares of any other corporation or corporations, foreign or domestic, for which the Corporation has the right to vote. The authority granted to these officers to vote or represent on behalf of the Corporation any and all shares held by the Corporation in any other corporation or corporations may be exercised by any of these officers in person or by any person authorized to do so by proxy duly executed by these officers. Section 9 CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the DGCL shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular. In addition, as used in these Bylaws, the following terms have the meanings set forth below: "Board" means the Board of the Corporation. "DGCL" means the Delaware General Corporation Law, as the same may from time to time be amended. "Stockholders" means the Stockholders of the Corporation. Section 10 AMENDMENTS TO BYLAWS. The Board is expressly empowered to adopt, amend or repeal Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the Corporation by the Board shall require the approval of a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any resolution providing for adoption, amendment or repeal is presented to the Board). The Page 13 Stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the Corporation by the Stockholders shall require, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by the Certificate of Incorporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. Section 11 CONFORMANCE TO THE LAW. In the event that it is determined that these Bylaws, as now written or as amended, conflict with the DGCL, or any other applicable law, as now enforced or as amended, these Bylaws shall be deemed amended, without action of the Board or the Stockholders, to conform with such law. Such amendment to be so interpreted as to bring these Bylaws within minimum compliance. For purposes of this section, "amendment" shall include a repeal of, or a change in interpretation of, the relevant compendium. Section 12 FISCAL YEAR. The fiscal year of the Corporation shall be determined by the Board. Section 13 DIVIDENDS; SURPLUS. Subject to the provisions of the Certificate of Incorporation and any restrictions imposed by statute, the Board may declare dividends out of the net assets of the Corporation in excess of its capital or, in case there shall be no such excess, out of the net profits of the Corporation for the fiscal year then current and/or the preceding fiscal year, or out of any funds at the time legally available for the declaration of dividends (hereinafter referred to as "surplus or net profits") whenever, and in such amounts as, in its sole discretion, the conditions and affairs of the Corporation shall render advisable. The Board in its sole discretion may, in accordance with law, from time to time set aside from surplus or net profits such sum or sums as it may think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for the purpose of maintaining or increasing the property or business of the Corporation, or for any other purpose as it may think conducive to the best interests of the Corporation. Section 14 WAIVER OF NOTICE. Whenever notice is required to be given under these Bylaws or the Certificate of Incorporation or the DGCL, a written waiver, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except where the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Stockholders, Board or any committee of the Board need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws. Page 14 CERTIFICATE OF SECRETARY I, the undersigned, do hereby certify: (1) That I am the duly elected and acting Secretary of VCA Antech, Inc., a Delaware corporation (the "Corporation"); and (2) That the foregoing Bylaws comprising of 16 pages, constitute the Bylaws of the Corporation as of ___________, 2001, as duly adopted by the Board. IN WITNESS WHEREOF, I have hereunto subscribed my name as of this ___ day of _______, 2001. ----------------------------- , Secretary Page 15 AMENDED AND RESTATED BYLAWS OF VCA ANTECH, INC. A DELAWARE CORPORATION AS OF ________ __, 2001 PAGE ARTICLE I CORPORATE OFFICES...........................................1 SECTION 1 REGISTERED OFFICE...........................................1 SECTION 2 PRINCIPAL OFFICE............................................1 SECTION 3 OTHER OFFICES...............................................1 ARTICLE II STOCKHOLDERS MEETINGS.......................................1 SECTION 1 PLACE OF MEETING............................................1 SECTION 2 ANNUAL MEETINGS.............................................1 SECTION 3 SPECIAL MEETINGS............................................1 SECTION 4 NOTICE OF MEETINGS..........................................2 SECTION 5 QUORUM......................................................2 SECTION 6 ADJOURNED MEETING...........................................2 SECTION 7 CHAIRMAN OF MEETING; OPENING OF POLLS.......................2 SECTION 8 PROXIES.....................................................3 SECTION 9 STOCKHOLDER LIST............................................3 SECTION 10 NO CONSENT OF STOCKHOLDERS IN LIEU OF MEETING...............3 SECTION 11 INSPECTORS OF ELECTION......................................3 SECTION 12 RECORD DATE.................................................4 SECTION 13 CONDUCT OF MEETINGS.........................................4 SECTION 14 EXCEPTION TO REQUIREMENTS OF NOTICE.........................5 SECTION 15 MATTERS CONSIDERED AT ANNUAL MEETING........................5 SECTION 16 NOMINATIONS FOR DIRECTOR....................................5 ARTICLE III BOARD OF DIRECTORS..........................................6 SECTION 1 POWERS......................................................6 SECTION 2 NUMBER......................................................6 SECTION 3 PLACE OF MEETING............................................6 SECTION 4 REGULAR MEETINGS............................................7 SECTION 5 SPECIAL MEETINGS............................................7 SECTION 6 MEETINGS BY COMMUNICATION EQUIPMENT.........................7 SECTION 7 QUORUM AND MANNER OF ACTING.................................7 SECTION 8 ACTION WITHOUT MEETING......................................8 SECTION 9 COMPENSATION OF DIRECTORS...................................8 SECTION 10 COMMITTEES..................................................8 ARTICLE IV OFFICERS....................................................8 SECTION 1 OFFICERS....................................................8 SECTION 2 CHAIRMAN OF THE BOARD.......................................8 SECTION 3 CHIEF EXECUTIVE OFFICER.....................................9 SECTION 4 PRESIDENT...................................................9 SECTION 5 VICE PRESIDENTS.............................................9 SECTION 6 SECRETARY...................................................9 SECTION 7 CHIEF FINANCIAL OFFICER....................................10 ARTICLE V INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS...............................................10 SECTION 1 AGENTS, PROCEEDINGS AND EXPENSES...........................10 SECTION 2 ACTIONS OTHER THAN BY THE CORPORATION......................10 SECTION 3 ACTIONS BY THE CORPORATION.................................11 SECTION 4 SUCCESSFUL DEFENSE BY AGENT................................11 SECTION 5 REQUIRED APPROVAL..........................................11 SECTION 6 ADVANCE OF EXPENSES........................................11 SECTION 7 CONTRACTUAL RIGHTS.........................................12 SECTION 8 LIMITATIONS................................................12 SECTION 9 INSURANCE..................................................12 SECTION 10 EFFECT OF AMENDMENT........................................12 SECTION 11 CONSTITUENT CORPORATIONS...................................13 SECTION 12 DEFINITIONS................................................13 ARTICLE VI MISCELLANEOUS..............................................13 SECTION 1 INSPECTION OF BOOKS AND RECORDS BY STOCKHOLDERS............13 SECTION 2 INSPECTION OF BOOKS AND RECORDS BY DIRECTORS...............13 SECTION 3 CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS..................13 Page ii SECTION 4 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED..........14 SECTION 5 CERTIFICATES FOR SHARES....................................14 SECTION 6 TRANSFER OF SHARES.........................................14 SECTION 7 LOST, STOLEN OR DESTROYED CERTIFICATES.....................14 SECTION 8 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.............15 SECTION 9 CONSTRUCTION AND DEFINITIONS...............................15 SECTION 10 AMENDMENTS TO BYLAWS.......................................15 SECTION 11 CONFORMANCE TO THE LAW.....................................15 SECTION 12 FISCAL YEAR................................................16 SECTION 13 DIVIDENDS; SURPLUS.........................................16 SECTION 14 WAIVER OF NOTICE...........................................16 Page iii EX-4 5 ex-4_1.txt EXHIBIT 4.1 - STOCKHOLDERS AGREEMENT EXHIBIT 4.1 STOCKHOLDERS AGREEMENT THIS STOCKHOLDERS AGREEMENT (the "AGREEMENT") is entered into as of September 20, 2000, by and among Veterinary Centers of America, Inc., a Delaware corporation (the "COMPANY"), Green Equity Investors III, L.P., a Delaware limited partnership (the "PURCHASER"), VCA Co-Investment Fund I, LLC, a Delaware limited liability company ("VCA I"), VCA Co-Investment Fund II, LLC, a Delaware limited liability company ("VCA II"), VCA Co-Investment Fund III, LLC, a Delaware limited liability company ("VCA III"), VCA Co-Investment Fund IV, LLC, a Delaware limited liability company ("VCA IV"), VCA Co-Investment Fund V, LLC, a Delaware limited liability company ("VCA V"), VCA Co-Investment Fund VI, LLC., a Delaware limited liability company ("VCA VI"), VCA Co-Investment Fund VII, LLC., a Delaware limited liability company ("VCA VII") and VCA Co-Investment Fund VIII, LLC., a Delaware limited liability company ("VCA VIII" and, together with VCA I, VCA II, VCA III, VCA IV, VCA V, VCA VI and VCA VII, the "VCA CO-INVESTMENT FUNDS"), GS Mezzanine Partners II, L.P., a Delaware limited partnership ("GS MEZZANINE"), GS Mezzanine Partners II Offshore, L.P., an exempted limited partnership organized under the laws of the Cayman Islands ("GS MEZZANINE OFFSHORE," and, together with GS Mezzanine, the "GS Purchasers"), TCW Leveraged Income Trust, L.P., a Delaware limited partnership ("TCW I"), TCW Leveraged Income Trust II, L.P., a Delaware limited partnership ("TCW II"), TCW Leveraged Income Trust IV, L.P., a Delaware limited partnership ("TCW III"), TCW/Crescent Mezzanine Partners II, L.P., a Delaware limited partnership ("TCW IV"), TCW/Crescent Mezzanine Trust II, a closed-end Delaware statutory business trust ("TCW V" and, together with TCW I, TCW II, TCW III and TCW IV, the "TCW PURCHASERS"), The Northwestern Mutual Life Insurance Company, a Wisconsin corporation ("NORTHWESTERN" and, together with the GS Purchasers and the TCW Purchasers, the "MEZZANINE PURCHASERS"), and each of the management or employee stockholders named on the signature pages hereto (collectively, the "MANAGEMENT STOCKHOLDERS" and, individually, a "MANAGEMENT STOCKHOLDER"); provided that such Management Stockholders shall be (i) those persons identified in the rollover schedule (the "ROLLOVER SCHEDULE") delivered by the Company to Vicar Recap, Inc., a Delaware corporation ("RECAP"), pursuant to the Merger Agreement (as defined below) and (ii) such other persons that are designated by the Board of Directors (as defined below) after the date of this Agreement as Management Stockholders. Each of the parties to this Agreement (other than the Company) and any other Person (as defined in Section 4.1) who in accordance herewith shall become a party to, or agree to be bound by the terms of, this Agreement after the date hereof is sometimes hereinafter referred to, individually, as a "STOCKHOLDER" and, collectively, as "STOCKHOLDERS." The Purchaser and the VCA Co-Investment Funds are sometimes herein referred to, individually, as an "INVESTOR" and, collectively, as "INVESTORS." RECITALS Prior to the execution of this Agreement, the Company, Recap and Vicar Operating, Inc., a Delaware corporation and wholly owned subsidiary of the Company ("OPERATING COMPANY"), have entered into the Amended and Restated Agreement and Plan of Merger, dated as of August Page 1 11, 2000 (the "MERGER AGREEMENT"). The execution and delivery of this Agreement is a condition to the parties' obligations under the Merger Agreement. Pursuant to the Merger Agreement, the Company will, prior to the Merger, contribute all of its assets (other than the capital stock of Operating Company), properties, business operations and liabilities to Operating Company (the "ASSET DROP DOWN"), and following the Asset Drop Down, Recap will merge with and into the Company, with the Company as the surviving corporation (the "MERGER"). In connection with the transactions contemplated by the Merger Agreement and as set forth in the Rollover Schedule, certain shares of common stock of the Company held by certain Management Stockholders prior to the Merger shall remain outstanding following the Merger as shares of common stock, par value $.01 per share, of the Company (the "COMMON STOCK"), and certain Management Stockholders may provide other consideration of equivalent value to acquire shares of Common Stock (the "RECAPITALIZATION"); and immediately following the consummation of the Merger, the Management Stockholders shall hold, in the aggregate, 266,667 shares of Common Stock. In connection with the transactions contemplated by the Merger Agreement, the Investors shall enter into a Subscription Agreement (the "SUBSCRIPTION AGREEMENT") with Recap and the Company, which shall provide for the purchase by the Investors, (i) prior to the effective time of the Merger, of an aggregate of 956,667 shares of common stock of Recap, and (ii) immediately following the consummation of the Merger, of an aggregate of 2,998,408 shares of Series A Senior Preferred Stock, par value $.01 per share, of the Company (the "SENIOR PREFERRED STOCK") and an aggregate of 2,970,822 shares of Series B Junior Preferred Stock, par value $.01 per share, of the Company (the "JUNIOR PREFERRED STOCK"). In the Merger, each outstanding share of common stock, par value $.01 per share, of Recap shall be converted into one share of Common Stock. Immediately prior to the consummation of the Merger, the Company and the Mezzanine Purchasers shall enter into a Purchase Agreement, dated as of the date of this Agreement (the "MEZZANINE PURCHASE AGREEMENT"), providing for the issuance and sale by the Company to the Mezzanine Purchasers of 100,000 units of the Company consisting of $100,000,000 in aggregate principal amount of Senior Notes due 2010 of the Company, 172,408 shares of Senior Preferred Stock, 170,822 shares of Junior Preferred Stock, and 76,666 warrants (the "WARRANTS") to purchase an aggregate of 76,666 shares of Common Stock. Following the consummation of the transactions contemplated by the Merger Agreement, the Subscription Agreement and the Mezzanine Purchase Agreement, the Stockholders will own the shares of Common Stock, the shares of Senior Preferred Stock, and the shares of Junior Preferred Stock set forth on SCHEDULE 1 hereto. Shares of Common Stock now owned or hereafter acquired by any Stockholder (including, without limitation, upon exercise of the Warrants) are collectively referred to as the "COMMON SHARES," shares of Junior Preferred Stock now owned or hereafter acquired by any Page 2 Stockholder are collectively referred to as the "JUNIOR PREFERRED SHARES," shares of Senior Preferred Stock now owned or hereafter acquired by any Stockholder are collectively referred to as the "SENIOR PREFERRED SHARES," Junior Preferred Shares and Senior Preferred Shares are collectively referred to as the "PREFERRED SHARES," and Common Shares and Preferred Shares are collectively referred to as the "SHARES." The Company and each of the Stockholders desire, for their mutual benefit and protection, to enter into this Agreement to set forth their respective rights and obligations with respect to their Shares (whether issued or acquired hereafter), including all shares of Common Stock or other equity interests of the Company issuable upon the exercise, conversion or exchange of Warrants, options, or other securities or rights to acquire shares of Common Stock or other equity interests of the Company, or upon the conversion or exchange of any security. The effectiveness of this Agreement is subject to the consummation of the transactions contemplated by the Merger Agreement. In the event that the Recapitalization, the Merger or the transactions contemplated by the Merger Agreement are not consummated, this Agreement shall be null and void without any liability or obligation by any party hereunder. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE 1. BOARD OF DIRECTORS AND MANAGEMENT PARTICIPATION 1.1 BOARD OF DIRECTORS. The Board of Directors of the Company (the "BOARD OF DIRECTORS") to be constituted upon the consummation of the transactions contemplated by the Merger Agreement will be composed of six (6) members. So long as Robert L. Antin is the Chief Executive Officer of the Company, he shall be nominated to the Board of Directors and each Stockholder agrees to vote in favor of such nomination. So long as Arthur J. Antin is the Chief Operating Officer of the Company, he shall be nominated to the Board of Directors, and each Stockholder agrees to vote in favor of such nomination. The Purchaser or its affiliates shall be entitled to nominate three (3) members of the Board of Directors and each Stockholder agrees to vote in favor of such nomination; PROVIDED, HOWEVER, the Purchaser or its affiliates shall have the right to elect additional members to the Board of Directors and increase the number of members that compose the Board of Directors to reflect the percentage ownership of the Purchaser, the VCA Co-Investment Funds and their respective affiliates in the Company (each such person designated by the Purchaser or its affiliates referred to as a "PURCHASER DESIGNEE"), and each Stockholder agrees to provide such votes or consents and to take all such other actions as the Purchaser or its affiliates may request in order to effectuate the appointment or election of such Purchaser Designees. In the event of a vacancy on the Board of Directors as a result of the disqualification, death or resignation of a director, the party originally making such nomination shall be entitled to select and nominate such replacement director and the remaining members of the Board of Directors agree to fill such vacancy with such replacement director. Any action taken by the Board of Directors shall include the affirmative vote of at least one Purchaser Designee. The Company and the Stockholders shall take all other action necessary to ensure that the Amended and Restated Certificate of Incorporation of the Company and the Bylaws of the Page 3 Company do not at any time conflict with the provisions of this Agreement. For so long as he is a member of the Board of Directors, Robert L. Antin shall serve on the committee of the Board of Directors that is authorized to make grants of stock options under the Company's stock award plans. 1.2 DISCHARGE OF INDEBTEDNESS. Following the consummation of the Merger and effective on or after January 3, 2001, the Company will forgive and discharge all indebtedness then owing from Robert L. Antin and Arthur J. Antin to the Company, not to exceed $700,000 and any and all interest accrued thereon. ARTICLE 2. RESTRICTIONS ON TRANSFER; PREEMPTIVE RIGHTS 2.1 GENERAL RESTRICTIONS ON TRANSFER. So long as this Agreement is in effect, each Stockholder agrees that such Stockholder will not, directly or indirectly, sell, hypothecate, give, bequeath, transfer, assign, pledge or in any other way whatsoever encumber or dispose of, by operation of law or otherwise (any such event, a "TRANSFER"), any Shares now or hereafter at any time owned by such Stockholder (or any interest therein) to another Person ("TRANSFEREE"), to the extent such Transfer is prohibited by this Agreement or, as to any Management Stockholder, any applicable employment agreement or option agreement between any Management Stockholder and the Company. The Company shall not transfer upon its books any Shares to any Person to the extent prohibited by this Agreement and any purported transfer in violation hereof shall be null and void and of no effect. Each Stockholder represents and warrants to the Company that, except as permitted by Section 2.4 and Article 3, there is not any plan or intention on the part of such Stockholder to sell, exchange or otherwise dispose of the Shares owned by such Stockholder on the date hereof or following the consummation of the transactions contemplated by the Merger Agreement. 2.2 COMPLIANCE WITH SECURITIES LAWS. No Stockholder shall Transfer any Shares, and the Company shall not transfer on its books any Shares, unless (a) the Transfer is pursuant to an effective registration statement under the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission (as defined in Section 4.1) thereunder, all as the same shall be in effect at the time (the "SECURITIES ACT") and is in compliance with any applicable state securities or blue sky laws or (b) such Stockholder shall have furnished the Company with an opinion of counsel, to the extent reasonably required by the Company, which opinion and counsel shall be reasonably satisfactory to the Company, to the effect that no such registration is required because of the availability of an exemption from registration under the Securities Act; PROVIDED that any Transfer by a Stockholder that is a state-sponsored employee benefit plan to a successor trust or fiduciary or pursuant to a statutory reconstitution shall be expressly permitted and no opinions of counsel shall be required in connection therewith. As used in this Agreement, the term "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such Person. For purposes of this Agreement, the term "CONTROL" (including, with correlative meanings, the terms "controlling," "controlled by," and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of Page 4 the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities or by contract or otherwise. 2.3 AGREEMENT TO BE BOUND. No Transfer of Shares, including without limitation transfers otherwise permitted under Section 2.7, by a Stockholder shall be effective (and the Company shall not transfer on its books any Shares) unless (i) the certificates representing such Shares issued to the Transferee shall bear the legend provided in Section 7.4, if required by such Section 7.4, and (ii) the Transferee shall have executed and delivered to the Company, as a condition precedent to such Transfer, an instrument or instruments in form and substance satisfactory to the Company confirming that the Transferee agrees to be bound by the terms of this Agreement in the same capacity as the transferor and accepts the rights and obligations set forth hereunder, PROVIDED, HOWEVER, that the conditions set forth in this Section 2.3 shall not apply to any sale of Shares pursuant to an effective registration statement under the Securities Act. 2.4 TAG-ALONG RIGHTS FOR THE STOCKHOLDER PARTIES. 2.4.1 RIGHT TO PARTICIPATE IN SALE. Purchaser, its affiliates and its limited partner transferees are sometimes referred to in this Agreement, collectively, as the "PURCHASER PARTIES" and, individually, as a "PURCHASER PARTY." The VCA Co-Investment Funds and their respective affiliates are sometimes referred to in this Agreement, collectively, as the "CO-INVESTOR PARTIES" and, individually, as a "CO-INVESTOR PARTY." The Purchaser Parties and the Co-Investor Parties are sometimes referred to in this Agreement, collectively, as the "INVESTOR PARTIES" and, individually, as an "INVESTOR PARTY." The Mezzanine Purchasers and their respective affiliates are sometimes referred to in this Agreement, collectively, as the "MEZZANINE PARTIES" and, individually, as a "MEZZANINE PARTY." The Management Stockholders and their respective spouses, descendants and ancestors and any trusts solely for the benefit of any or all of the foregoing are sometimes referred to in this Agreement, collectively, as the "MANAGEMENT PARTIES" and, individually, as a "MANAGEMENT PARTY." The Investor Parties, the Mezzanine Parties and the Management Parties are sometimes referred to in this Agreement, collectively, as the "STOCKHOLDER PARTIES" and, individually, as a "STOCKHOLDER PARTY." As used in this Section 2.4.1, (i) the "TRIGGERING TRANSACTION" shall mean the transaction representing a sale or other disposition of Shares by an Investor Party other than one or more Exempt Transactions, and (ii) "EXEMPT TRANSACTIONS" shall mean any sale or other disposition of Shares by an Investor Party as set forth in Section 2.4.5. If at any time any Investor Party or Investor Parties propose to enter into an agreement (or substantially contemporaneous agreements, whether or not with the same or affiliated parties) to sell or otherwise dispose of for value any Common Shares or Preferred Shares in one or more related transactions that will result in the transfer of any of the outstanding Common Shares or Preferred Shares, as the case may be, other than in one or more related Exempt Transactions (such sale or other disposition for value being referred to as a "TAG-ALONG SALE," and such Investor Parties being referred to, collectively, as "SELLING STOCKHOLDERS"), then the Selling Stockholders shall afford the Stockholder Parties who are not Selling Stockholders (each individually a "TAG-ALONG STOCKHOLDER" and, collectively, the "TAG-ALONG STOCKHOLDERS") the opportunity to participate proportionately in such Tag-Along Sale in accordance with this Section 2.4; PROVIDED, that the Tag-Along Stockholders of Common Shares Page 5 may participate proportionately only in the event of a Tag-Along Sale of Common Shares, the Tag-Along Stockholders of Junior Preferred Shares may participate proportionately only in the event of a Tag-Along Sale of Junior Preferred Shares, and the Tag-Along Stockholders of Senior Preferred Shares may participate proportionately only in the event of a Tag-Along Sale of Senior Preferred Shares. The number of Common Shares, Junior Preferred Shares or Senior Preferred Shares, as the case may be, that each Tag-Along Stockholder will be entitled to include in such Tag-Along Sale (the "TAG-ALONG ALLOTMENT") shall be determined by (x) in the case of Common Shares, multiplying (i) the number of Common Shares held by such Tag-Along Stockholder on a fully-diluted basis as of the close of business on the day immediately prior to the Tag-Along Notice Date (as hereinafter defined) by (ii) a fraction, the numerator of which shall equal the number of Common Shares proposed by the Selling Stockholders to be sold or otherwise disposed of pursuant to the Tag-Along Sale and the denominator of which shall equal the total number of Common Shares that are beneficially owned by the Selling Stockholders on a fully-diluted basis as of the close of business on the day immediately prior to the Tag-Along Notice Date (the fraction referred to in this clause (ii) being the "COMMON SHARE PURCHASER FRACTION"), (y) in the case of Junior Preferred Shares, multiplying (i) the number of Junior Preferred Shares held by such Tag-Along Stockholder on a fully-diluted basis as of the close of business on the day immediately prior to the Tag-Along Notice Date by (ii) a fraction, the numerator of which shall equal the number of Junior Preferred Shares proposed by the Selling Stockholders to be sold or otherwise disposed of pursuant to the Tag-Along Sale and the denominator of which shall equal the total number of Junior Preferred Shares that are beneficially owned by the Selling Stockholders on a fully-diluted basis as of the close of business on the day immediately prior to the Tag-Along Notice Date (the "JUNIOR PREFERRED SHARE PURCHASER FRACTION"), and (z) in the case of Senior Preferred Shares, multiplying (i) the number of Senior Preferred Shares held by such Tag-Along Stockholder on a fully-diluted basis as of the close of business on the day immediately prior to the Tag-Along Notice Date by (ii) a fraction, the numerator of which shall equal the number of Senior Preferred Shares proposed by the Selling Stockholders to be sold or otherwise disposed of pursuant to the Tag-Along Sale and the denominator of which shall equal the total number of Senior Preferred Shares that are beneficially owned by the Selling Stockholders on a fully-diluted basis as of the close of business on the day immediately prior to the Tag-Along Notice Date (the "SENIOR PREFERRED SHARE PURCHASER Fraction"). 2.4.2 SALE NOTICE. The Selling Stockholders shall provide each Tag-Along Stockholder and the Company with written notice (the "TAG-ALONG SALE NOTICE") not more than twenty (20) days nor less than ten (10) days prior to the proposed date of the Tag-Along Sale of Common Shares or less than two (2) Business Days prior to the proposed date of the Tag-Along Sale of Preferred Shares (the "TAG-ALONG SALE DATE"). For purposes of this Agreement, a "BUSINESS DAY" shall mean any day that is not a Saturday, a Sunday or a day on which banking institutions in the Company's principal place of business, the City of New York or at a place of payment are not required to be open. Each Tag-Along Sale Notice shall be accompanied by a copy of any written agreement relating to the Tag-Along Sale and shall set forth: (i) the name and address of each proposed Transferee of Shares in the Tag-Along Sale; (ii) the number of Shares proposed to be Transferred by such Selling Stockholders; (iii) the proposed amount and form of consideration to be paid for such Shares and the terms and conditions of payment offered Page 6 by each proposed Transferee; (iv) the aggregate number of Shares held of record by the Selling Stockholders as of the close of business on the day immediately prior to the date of the Tag-Along Notice (the "TAG-ALONG NOTICE DATE"); (v) the Tag-Along Stockholder's Tag-Along Allotment assuming the Tag-Along Stockholder elected to sell the maximum number of Shares possible; (vi) confirmation that the proposed Transferee has been informed of the Tag-Along Rights provided for herein and has agreed to purchase Shares from any Tag-Along Stockholder in accordance with the terms hereof; and (vii) the Tag-Along Sale Date. 2.4.3 TAG-ALONG NOTICE. Any Tag-Along Stockholder wishing to participate in the Tag-Along Sale shall provide written notice (the "TAG-ALONG NOTICE") to the Selling Stockholders no less than five (5) days prior to the Tag-Along Sale Date. The Tag-Along Notice shall set forth the number of Shares that such Tag-Along Stockholder elects to include in the Tag-Along Sale, which shall not exceed such Tag-Along Stockholder's Tag-Along Allotment. The Tag-Along Notice given by any Tag-Along Stockholder shall constitute such Tag-Along Stockholder's binding agreement to sell the Shares specified in the Tag-Along Notice on the terms and conditions applicable to the Tag-Along Sale; PROVIDED, HOWEVER, that in the event that there is any material change in the terms and conditions of such Tag-Along Sale applicable to the Tag-Along Stockholder (including, but not limited to, any decrease in the purchase price that occurs other than pursuant to an adjustment mechanism set forth in the agreement relating to the Tag-Along Sale) after such Tag-Along Stockholder gives its Tag-Along Notice, then, notwithstanding anything herein to the contrary, the Tag-Along Stockholder shall have the right to withdraw from participation in the Tag-Along Sale with respect to all, but not less than all, of its Shares affected thereby. If the proposed Transferee does not consummate the purchase of all of the Shares requested to be included in the Tag-Along Sale by any Tag-Along Stockholder on the same terms and conditions applicable to the Selling Stockholders, then such Selling Stockholders shall not consummate the Tag-Along Sale of any of its Shares to such Transferee, unless the Shares of such Selling Stockholders and the Tag-Along Stockholders to be sold are reduced or limited PRO RATA in proportion to the respective number of Shares actually sold in any such Tag-Along Sale and all other terms and conditions of the Tag-Along Sale are the same for such Selling Stockholders and the Tag-Along Stockholders. If a Tag-Along Notice from any Tag-Along Stockholder is not received by such Selling Stockholders prior to the five (5) day period specified above, such Selling Stockholders shall have the right to consummate the Tag-Along Sale without the participation of such Tag-Along Stockholder, but only on terms and conditions that are no more favorable in any material respect to such Selling Stockholders (and, in any event, at no greater a purchase price, except as the purchase price may be adjusted pursuant to the agreement relating to the relevant Tag-Along Sale) than as stated in the Tag-Along Sale Notice and only if such Tag-Along Sale occurs on a date within ninety (90) days (or such necessary longer period, if any, pending any necessary approval or non-objection by, or any filing with, any governmental or regulatory authority being sought in good faith by appropriate proceedings promptly initiated and diligently conducted) of the Tag-Along Sale Date. If such Tag-Along Sale does not occur within such ninety (90) day period, the Shares that were to be subject to such Tag-Along Sale thereafter shall continue to be subject to all of the restrictions contained in this Section 2.4. Page 7 2.4.4 DELIVERY OF CERTIFICATES. On the Tag-Along Sale Date, each Tag-Along Stockholder shall deliver a certificate or certificates for the Shares to be sold by such Tag-Along Stockholder in connection with the Tag-Along Sale, duly endorsed for transfer with signatures guaranteed, to the Transferee in the manner and at the address indicated in the Tag-Along Notice against delivery of the purchase price for such Shares. 2.4.5 EXEMPT TRANSFERS. The provisions of this Section 2.4 shall not apply: (i) to any sale, transfer or other disposition of Shares by and among Investor Parties and/or Mezzanine Parties; (ii) to any sale, transfer or other disposition of Preferred Shares by any Transferee that purchases or otherwise acquires Preferred Shares after the date of this Agreement; (iii) to any sale of Shares to the public pursuant to an effective registration statement under the Securities Act or pursuant to Rule 144 under the Securities Act, as such rule may be amended from time to time, or any other similar regulation hereafter adopted by the Commission ("RULE 144"); (iv) to any sale, transfer or other disposition of Common Shares, from and after a Public Offering Event. For the purposes of this Agreement, a "PUBLIC OFFERING EVENT" shall mean a firm commitment underwritten initial public offering or public offerings (on a cumulative basis) of shares of Common Stock of the Company pursuant to a registration statement or registration statements under the Securities Act with aggregate gross proceeds to the Company of at least $30 million; or (v) to any bona fide pledge of Shares to a commercial bank, savings and loan institution or any other similar lending institution as security for any indebtedness to such lender, PROVIDED that, prior to any such pledge, the Company is informed in writing of such pledge and the pledgee shall deliver to the Company its written agreement, in form and substance satisfactory to the Company, and that upon any foreclosure such pledgee shall comply with the terms of Section 2.3 of this Agreement. 2.5 COOPERATION BY THE COMPANY. The Company will provide reasonable assistance to any Stockholder seeking to sell its Shares, PROVIDED that the Company shall not be required to provide any confidential information to any prospective purchaser who has not executed a confidentiality agreement in form satisfactory to the Company; PROVIDED, FURTHER, that the Company shall not be obligated to provide confidential information or to execute any confidentiality agreements that senior officers of the Company, in their good faith judgment, reasonably believe would be detrimental to the Company's business. After a Public Offering Event, the Company will also cooperate with any Stockholder in having all stop transfer instructions or notations and restrictive legends lifted in connection with the sale (other than to an affiliate of the Company) of Shares pursuant to Rule 144; PROVIDED that in such a case the Selling Stockholder shall be required to provide the Company with the opinion provided for in Section 2.2. Page 8 2.6 INVOLUNTARY TRANSFER. In the case of any Transfer of title or beneficial ownership of Shares upon default, foreclosure, forfeit, court order, or otherwise than by a voluntary decision on the part of a Stockholder (an "INVOLUNTARY TRANSFER"), such Stockholder (or such Stockholder's legal representatives) shall promptly (but in no event later than two (2) business days after such Involuntary Transfer) furnish written notice to the Company indicating that an Involuntary Transfer has occurred, specifying the name of the Person to whom such Shares have been transferred, giving a detailed description of the circumstances giving rise to, and stating the legal basis for, the Involuntary Transfer. 2.7 RIGHT OF FIRST REFUSAL. 2.7.1 RIGHT OF FIRST REFUSAL. No Management Party shall Transfer any Shares except as specifically permitted by this Section 2.7 or under the terms of Section 2.4 or Article 3. If at any time any Management Party (a "SELLING MANAGEMENT PARTY") desires to sell or otherwise dispose of solely for cash all or any part of the Shares held by such Selling Management Party, and such Selling Management Party shall have received an irrevocable and unconditional bona fide arm's-length written offer (the "BONA FIDE OFFER") for the purchase of such Shares from any third party unaffiliated with such Selling Management Party (an "OUTSIDE PARTY"), the Selling Management Party shall provide written notice (the "SALE NOTICE") to each of (i) Purchaser (together with its assigns, the "PURCHASER BUYER"), (ii) the VCA Co-Investment Funds (together with their respective assigns, the "CO-INVESTOR BUYERS"), (iii) the Mezzanine Purchasers (together with their respective assigns, the "MEZZANINE BUYERS"), (iv) the non-selling Management Stockholders (collectively with the Purchaser Buyer, the Co-Investor Buyers and the Mezzanine Buyers, the "SECONDARY BUYERS") and (v) the Company (each of the Secondary Buyers and the Company, a "POTENTIAL BUYER") setting forth such desire to sell or otherwise dispose of for cash such Shares, which Sale Notice shall be accompanied by a photocopy of the original Bona Fide Offer and shall set forth at least the name and address of the Outside Party and the price and terms of such Bona Fide Offer. Upon the giving of such Sale Notice, each Potential Buyer shall, subject to the priorities set forth below, have the option (which option (the "PURCHASE OPTION"), in the case of the Purchaser Buyer, any of the Co-Investor Buyers and any of the Mezzanine Buyers only, shall be assignable at such assignor's sole discretion, but only to such assignor's affiliates) to purchase all, but not less than all, of such Shares specified in the Sale Notice, on the same terms and conditions, including but not limited to the offer price for the Shares, as the Bona Fide Offer. Each Potential Buyer shall have thirty (30) days from receipt of the Sale Notice to provide written notice (the "ACCEPTANCE NOTICE") to such Selling Management Party of its desire to exercise such Purchase Option. If more than one Potential Buyer shall deliver an Acceptance Notice within such thirty (30) day period, the priority as among the Potential Buyers to match the Bona Fide Offer and purchase such Shares shall be, to the extent such Potential Buyers have delivered Acceptance Notices, FIRST, the Company and SECOND, if the Company shall have failed to deliver an Acceptance Notice, the Secondary Buyers, based on the allocations set forth below, PROVIDED, HOWEVER, that the Company and the Secondary Buyers may in their discretion, agree to a different allocation of the Shares to be purchased as among themselves so long as each of them agrees to such allocation. If the Company fails to deliver an Acceptance Notice and (i) at least two Secondary Buyers deliver Acceptance Notices, each of them shall purchase from such Selling Management Party such number of Shares as equals Page 9 (A) the total number of Shares specified in the Sale Notice delivered by such Selling Management Party multiplied by (B) a fraction, the numerator of which shall equal the number of Shares held by such Secondary Buyer on a fully-diluted basis as of the close of business on the day immediately prior to the date on which such Selling Management Party delivers the Sale Notice to the Potential Buyers and the denominator of which shall equal the aggregate number of Shares held by all Secondary Buyers who delivered Acceptance Notices, on a fully-diluted basis, on such date, or (ii) only one Secondary Buyer delivers an Acceptance Notice, such Secondary Buyer shall purchase all of the Shares specified in such Sale Notice. If a Potential Buyer or Potential Buyers, as applicable, elects to purchase, in the aggregate, all of the Shares covered by the Bona Fide Offer on the terms and conditions set forth in the Sale Notice, the Potential Buyer(s) entitled to purchase such Shares (the "CHOSEN BUYER(S)") shall be determined in accordance with the priorities set forth above and such Chosen Buyer(s) shall be obligated to purchase, and such Selling Management Party shall be obligated to sell, such Shares at the price and terms specified in the Sale Notice. The closing of the purchase by the Chosen Buyer(s) shall be held on a business day within ninety (90) days (or such necessary longer period, if any, pending any necessary approval or non-objection by, or any filing with, any governmental or regulatory authority being sought in good faith by appropriate proceedings promptly initiated and diligently conducted) after the giving of the relevant Acceptance Notice, at the principal offices of the Chosen Buyer(s), or at such other time and place as may be mutually agreed to by the Chosen Buyer(s) and the Selling Management Party. If no Acceptance Notice(s) is (are) delivered within the periods specified above by one or more Potential Buyers, as applicable, with respect to all (but not less than all) of the Shares included in the Sale Notice, the Selling Management Party shall, upon compliance with the provisions of Section 2.3, have the right to consummate the sale of all (but not less than all) of the Shares covered by the Sale Notice to the Outside Party but only at the price and upon terms and conditions no less favorable to the Selling Management Party than those contained in the Sale Notice (PROVIDED that the purchase price must be payable solely in cash) and only if such sale occurs on a date within sixty (60) days of the date of the Sale Notice; PROVIDED, HOWEVER, that in the event the Selling Management Party has not so transferred all (but not less than all) of such Shares to the Outside Party within such sixty (60) day period, then such Shares thereafter shall continue to be subject to all of the restrictions contained in this Agreement. 2.7.2 NO WAIVER. Any election in any instance by any Potential Buyer not to exercise its option rights under this Section 2.7 shall not constitute a waiver of such rights with respect to any other proposed Transfer of Shares. 2.7.3 EXEMPT TRANSFERS. Subject to the provisions of Section 2.3, the provisions of this Section 2.7 shall not apply: (i) to any sale of Shares to the public pursuant to an effective registration statement under the Securities Act or pursuant to Rule 144; Page 10 (ii) to any Transfer of Shares by any Stockholder to any organization that is exempt from taxation pursuant to Section 501(c)(3) or 501(c)(4) of the Internal Revenue Code of 1986, as amended; (iii) to any Transfer of Shares by any Stockholder by will, the intestacy laws or the laws of descent; (iv) to any Transfer of Shares for estate planning purposes by any Stockholder to such Stockholder's spouse or direct lineal descendant or ancestor; and (v) to any Transfer of Shares by any Stockholder to such Stockholder's spouse or direct lineal descendant or ancestor or to any trust solely for the benefit of any or all of the foregoing or any beneficiaries thereof, PROVIDED that each of the following conditions shall be satisfied: (A) after giving effect to such Transfer, sole voting power with respect to such Transferred Shares shall be held by the transferor of such Transferred Shares; and (B) the Transferee of such Transferred Shares shall have executed and delivered to the Company, as a condition precedent to such Transfer, an instrument or instruments in form and substance satisfactory to the Company confirming that the Transferee agrees to be bound by the terms of this Agreement and accepts the rights and obligations set forth in this Agreement. 2.8 CALL OPTION. 2.8.1 ANTIN CALL OPTION. Robert L. Antin ("ANTIN") agrees that the Company, the Purchaser (or its assigns), each VCA Co-Investment Fund (or its assigns), each Mezzanine Purchaser (or its assigns) and each Management Stockholder (or his or her assigns) other than Antin (collectively, the "ANTIN CALL OPTION Buyers") shall have a call option (the "ANTIN CALL OPTION") to purchase up to one-half of the Shares held by Antin on the date immediately after the closing date of the Merger, including Shares subject to stock options held by Antin on that date (the "ANTIN CALLABLE SHARES"), in the event of a termination for any reason (including termination because of death or disability) (a "TERMINATION") of Antin's employment with the Company (or any of its subsidiaries). The Antin Call Option will expire on the second anniversary of the closing date of the Merger (the "ANTIN VESTING PERIOD"). 2.8.2 EXECUTIVE EMPLOYEE CALL OPTION. Each of Arthur J. Antin, Neil Tauber and Tomas Fuller (each, an "EXECUTIVE EMPLOYEE") agrees that the Company, the Purchaser (or its assigns), each VCA Co-Investment Fund (or its assigns), each Mezzanine Purchaser (or its assigns) and each Management Stockholder (or his or her assigns) other than, in the case of each Executive Employee, such Executive Employee (collectively, the "EXECUTIVE CALL OPTION BUYERS") shall have a call option (the "EXECUTIVE CALL OPTION") to purchase up to two-thirds of the Shares held by such Executive Employee on the date immediately after the closing date of the Merger, including Shares subject to stock options held by such Executive Employee on that date Page 11 (the "EXECUTIVE CALLABLE SHARES"), in the event of a Termination of such Executive Employee's employment with the Company (or any of its subsidiaries). As to each Executive Employee, the Executive Call Option will expire as to one-half of the total number of Executive Callable Shares on each of the second and the third anniversaries of the closing date of the Merger (the "EXECUTIVE VESTING PERIOD"). 2.8.3 MANAGEMENT EMPLOYEE CALL OPTION. Each Management Stockholder other than Antin and the Executive Employees (each, a "MANAGEMENT EMPLOYEE" and, collectively, together with Antin and the Executive Employees, the "EMPLOYEES") agrees that the Company, the Purchaser (or its assigns), each VCA Co-Investment Fund (or its assigns), each Mezzanine Purchaser (or its assigns) and each Management Stockholder (or his or her assigns) other than, in the case of each Management Employee, such Management Employee (collectively, the "MANAGEMENT CALL OPTION BUYERS" and, together with the Antin Call Option Buyers and the Executive Call Option Buyers, the "CALL OPTION BUYERS") shall have a call option (the "MANAGEMENT CALL OPTION" and, together with the Antin Call Option and each of the Executive Call Options, the "CALL OPTION") to purchase up to all of the Shares held by such Management Employee on the date immediately after the closing date of the Merger, including Shares subject to stock options held by such Management Employee on that date (the "MANAGEMENT CALLABLE SHARES" and, together with the Antin Callable Shares and the Executive Callable Shares, the "CALLABLE SHARES"), in the event of a Termination of such Management Employee's employment with the Company (or any of its subsidiaries). As to each Management Employee, the Management Call Option will expire as to one-fourth of the total number of Management Callable Shares on the first anniversary of the closing date of the Merger and as to a pro rata portion of the remaining three-fourths at the end of each month after the first anniversary for the next thirty-six (36) months (the "MANAGEMENT VESTING PERIOD"). 2.8.4 CHANGE OF CONTROL. Notwithstanding anything to the contrary in Sections 2.8.1, 2.8.2 and 2.8.3, the Call Option will expire as to all of the total number of Callable Shares held by each Employee upon a Change of Control of the Company. For purposes of this Agreement, a "CHANGE OF CONTROL" of the Company shall be deemed to have occurred if (a) there shall be consummated (x) any sale, transfer or other disposition (including, without limitation, pursuant to a merger or consolidation) by the Investors and their respective affiliates and related parties, together with any entities controlled by Leonard Green & Partners, L.P. (collectively, the "INVESTOR GROUP"), to a third Person of Common Shares that represent more than 50% of the Common Shares held by the Investor Group immediately following the consummation of the Merger, as adjusted for stock splits, recapitalizations, subdivisions, combinations or other such transactions, or (y) any sale, lease or other transfer (in one transaction or a series of related transactions) of all of the assets of the Company or either of its laboratory or hospital operating divisions, or (b) the holders of the capital stock of the Company approve any plan or proposal for the liquidation or dissolution of the Company, or (c) any Person shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) prior to the time (if any) that the Company issues any equity securities pursuant to a registration statement filed with the Commission under the Securities Act of a greater number of voting securities of the Company than the number of voting securities of the Company beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) by the Investor Group, or (d) Page 12 after such time (if any) that the Company issues any equity securities pursuant to a registration statement filed with the Commission under the Securities Act, any Person (other than the Investor Group) shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 30% or more of the voting securities of the Company. 2.8.5 CALL OPTION PROCEDURE. The occurrence of a Termination prior to a Change of Control of the Company and the expiration of the Antin Vesting Period, the Executive Vesting Period or the Management Vesting Period, as applicable, shall be deemed a "CALL EVENT." Upon the occurrence of a Call Event, the applicable Call Option Buyers may exercise the applicable Call Option (in the priority set forth below) by written notice (an "OPTION NOTICE") delivered to the applicable Employee within ninety (90) days after such Call Event, and, upon the giving of the Option Notice, the applicable Call Option Buyers will be obligated to purchase, and such Employee will be obligated to sell, all or any lesser portion indicated in the Option Notice of the applicable Callable Shares owned at the time of the Call Event by such Employee, including all such Shares acquired by a Person pursuant to an Exempt Transfer as set forth in Section 2.7.3. The priority to exercise any Call Option shall be, FIRST, to the Company and, SECOND, to the other applicable Call Option Buyers; PROVIDED, HOWEVER, that the Company and the other applicable Call Option Buyers may elect not to exercise the Call Option and that the Company and the other applicable Call Option Buyers may in their discretion agree to a different allocation of the Shares to be called as among themselves. The exercise price of any Call Option shall be $15.00 per Share, as adjusted for stock splits, recapitalizations, subdivisions, combinations or other such transactions. In the event that the Company exercises a Call Option, any amounts payable to the Employee by the Company shall be first offset against any outstanding principal balance of any indebtedness owed to the Company (including any of its subsidiaries) by the Employee in accordance with the terms of such indebtedness. The closing for all purchases and sales of Callable Shares pursuant to this Section 2.8 shall be no later than thirty (30) days following delivery of the Option Notice and shall be in accordance with the terms governing the repayment of any indebtedness of such Employee to the Company. Any Shares subject to a Call Option shall be free and clear of any and all liens, claims, charges and encumbrances. 2.9 PREEMPTIVE RIGHTS. In the event of a proposed issuance of, or a proposed granting by the Company of, Common Stock or other equity securities of the Company, including securities convertible into or exchangeable for Common Stock, other than: (i) in a Public Offering Event; (ii) in any acquisition of the Company by, or any merger of the Company with, a third party in a bona fide arms' length transaction; (iii) the issuance of stock options (or any exercise thereof) to employees, directors and consultants of the Company or the issuance of Common Stock upon the exercise of any Warrants; (iv) the issuance of Common Stock pursuant to the exercise of any convertible securities of the Company; (v) any stock split, reverse stock split, recapitalization, or similar reorganization or reclassification; and (vi) the issuance of equity securities (including securities convertible into, or exchangeable or exercisable for, equity securities) to banks, financial institutions or similar entities in transactions approved by the Board of Directors, the principal purpose of which is other than the raising of capital through the sale of equity securities of the Company (each proposed issuance or grant other than those described in clauses (i) though (vi) hereof, a "PROPOSED ISSUANCE"), the Company shall provide Page 13 written notice of such Proposed Issuance to each Stockholder no less than thirty (30) days prior to the proposed date of the Proposed Issuance, and each Stockholder shall have the right, on the same terms as those of the Proposed Issuance and during a reasonable time no less than thirty (30) days after the Company has given such written notice to each Stockholder, to purchase that proportion of such Common Stock or other securities as is necessary to maintain such Stockholder's fully-diluted percentage equity interest in the Company on a record date not more than thirty (30) days prior to the Proposed Issuance (the "PROPOSED ISSUANCE RECORD DATE"). The price or prices for such Common Stock or other securities shall be no less favorable to each Stockholder than the price or prices at which such Common Stock or other securities are proposed to be offered for sale or granted to others, after deduction of the compensation for the sale, underwriting or purchase of such Common Stock or other securities by underwriters, dealers or other purchasers as may be paid by the Company. ARTICLE 3. DRAG-ALONG SALES 3.1 RIGHT OF INVESTOR PARTIES TO REQUIRE SALE. Notwithstanding any other provision of this Agreement (but subject to the last sentence of this Section 3.1), if some or all Investor Parties (collectively, the "DRAG-ALONG SELLERS") agree to sell or otherwise dispose of (or cause to be sold or otherwise disposed of) for value either (x) all of the Shares then owned by the Investor Parties, or (y) 50% or more in the aggregate of the outstanding Common Shares or Preferred Shares of any series, in each case in one or more related transactions (a "DRAG-ALONG SALE") to a third Person or third Persons who are not affiliates of any of the Drag-Along Sellers (a "THIRD PARTY"), then, upon the written demand of, (a) in the event of a Drag-Along Sale under subsection (x) of this Section 3.1, Drag Along Sellers holding Common Shares that represent a majority of the Common Shares held by all of the Drag-Along Sellers, or (b) in the event of a Drag-Along Sale under subsection (y) of this Section 3.1, Drag-Along Sellers holding Shares of a class or series that represent a majority of the Shares of such class or series held by all of the Drag-Along Sellers, each of the other Stockholders (the "REQUIRED SELLERS") shall be required to sell to such Third Party (i) in the event of a Drag-Along Sale under subsection (x) of this Section 3.1, all, but not less than all, of the Shares (including any and all options or Warrants to acquire such Shares) then held by each such Required Seller, or (ii) in the event of a Drag-Along Sale under subsection (y) of this Section 3.1, the Shares (including any options or Warrants to acquire such Shares, which such options and Warrants shall be calculated on an as-exercised basis) representing the same percentage of the same class or series of securities being sold or disposed of by the Drag-Along Sellers then held by each such Required Seller, in each case at the same price and on the same terms and conditions as the Drag-Along Sellers have agreed to, in writing, with such Third Party. Notwithstanding any other provision of this Agreement, no Transferee that purchases or otherwise acquires Preferred Shares after the date of this Agreement shall have any of the rights of a Drag-Along Seller under this Article 3. 3.2 DRAG-ALONG NOTICE. Prior to making any Drag-Along Sale, the Drag-Along Sellers shall promptly provide each Required Seller with written notice (the "DRAG-ALONG NOTICE") not more than thirty (30) or less than fifteen (15) days prior to the proposed date of the Drag-Along Sale of Common Shares or less than two (2) Business Days prior to the proposed date of the Drag-Along Sale of Preferred Shares (the "DRAG-ALONG SALE DATE"). The Drag- Page 14 Along Notice shall set forth: (i) the name and address of the Third Party; (ii) the name and address of each member of the Drag-Along Sellers; (iii) the proposed number of Common Shares and/or Preferred Shares to be sold to the Third Party by each member of the Drag-Along Sellers; (iv) the proposed amount and form of consideration to be paid per Common Share and/or Preferred Share and the terms and conditions of payment offered by the Third Party; (v) the number of Common Shares and Preferred Shares (and options or Warrants to acquire Shares) held of record as of the close of business on the date of the Drag-Along Sale Notice (the "DRAG-ALONG NOTICE DATE") by the Required Seller to whom the notice is sent; (vi) the aggregate number of Common Shares and Preferred Shares held of record as of the Drag-Along Notice Date by the Drag-Along Sellers; (vi) confirmation that the Drag-Along Sellers are selling the Shares then held by them to the Third Party in accordance with Section 3.1(x) or 3.1(y); (vii) the Drag-Along Sale Date; and (viii) confirmation that the proposed Third Party has agreed to purchase the Required Sellers' Common Shares, Preferred Shares, and/or options or Warrants to acquire Shares, as applicable, in accordance with the terms hereof. 3.3 DELIVERY OF CERTIFICATES. On the Drag-Along Sale Date, each Required Seller shall deliver (i) letter agreements (each such agreement being in a reasonable form that is provided to each Required Seller by the Company or the Drag-Along Sellers) providing for the cancellation of all of such Required Seller's options and Warrants that are to be sold to the Third Party pursuant to this Article 3 and (ii) certificates for all of such Required Seller's Common Shares, Preferred Shares and/or options or Warrants that are to be sold to the Third Party pursuant to this Article 3, which shall be, as applicable, duly endorsed for transfer with signatures guaranteed, to the Third Party in the manner and at the address indicated in the Drag-Along Notice against delivery of the purchase price for such Required Seller's Common Shares, Preferred Shares and/or options or Warrants (after subtracting from such purchase price the exercise prices of all such options and Warrants). 3.4 CONSIDERATION. The provisions of this Article 3 shall apply regardless of the form of consideration received in the Drag-Along Sale. 3.5 COOPERATION. The Drag-Along Sellers and the Required Sellers shall cooperate in good faith with each other in connection with the consummation of the Drag-Along Sale. Each of the Drag-Along Sellers and the Required Sellers shall be severally obligated to join on a pro rata basis (based on such party's share of the aggregate proceeds paid in such Drag-Along Sale) in any indemnification that is to be provided in connection with such Drag-Along Sale, other than any such indemnification that relates specifically to a particular party, including indemnification with respect to the representations and warranties given by such party regarding such party's title to and ownership of Common Shares, Preferred Shares and/or options or Warrants to acquire Shares or valid authorization by such party with respect to such Drag-Along Sale (which representations shall be made solely by such party); PROVIDED that no such party shall be obligated in connection with such Drag-Along Sale (i) to agree to indemnify or hold harmless the Third Party with respect to an amount in excess of the net cash proceeds paid to such party in connection with such Drag-Along Sale, or (ii) to agree to any post-closing commitment or obligation, including any non-compete agreement. Page 15 ARTICLE 4. REGISTRATION RIGHTS 4.1 DEFINITIONS. "COMMISSION" means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act and Exchange Act. "DEMAND" means a written request of the Company from either an Investor Holder, a Management Holder or a Mezzanine Holder to consummate a Demand Registration. "DEMAND REGISTRATION" means the registration under the Securities Act (including, but not limited to, a shelf registration under Rule 415 promulgated under the Securities Act) by the Company of all or part of the Registrable Shares of the Investor Holders, the Management Holders or the Mezzanine Holders, as applicable, pursuant to a Demand received by the Company. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder. "HOLDER" means a Holder of Registrable Shares. A Person is deemed to be a Holder of Registrable Shares whenever such Person owns Registrable Shares; PROVIDED, HOWEVER, that unless the Company is otherwise notified by the Holder of Registrable Shares, the Holder of Registrable Shares shall be deemed to be that Person set forth on the books and records of the Company or the registrar for such Registrable Shares. "INVESTOR HOLDER" means a Holder of Registrable Investor Shares, including a Transferee of Registrable Investor Shares if (i) the Transfer to such Transferee is not prohibited by this Agreement, and (ii) the Shares Transferred to such Transferee continue to be Registrable Shares. "MANAGEMENT HOLDER" means a Holder of Registrable Management Shares, including a Transferee of Registrable Management Shares if (i) the Transfer to such Transferee is not prohibited by this Agreement, and (ii) the Shares Transferred to such Transferee continue to be Registrable Shares. "MEZZANINE HOLDER" means a Holder of Registrable Mezzanine Shares, including a Transferee of Registrable Mezzanine Shares if (i) the Transfer to such Transferee is not prohibited by this Agreement, and (ii) the Shares Transferred to such Transferee continue to be Registrable Shares. "OTHER HOLDER" means a Person that holds securities of the Company and is entitled, pursuant to contractual rights with respect to such securities, to participate in, or demand, a registration under the Securities Act by the Company of securities of the Company. Page 16 "PERSON" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. "REGISTRABLE INVESTOR SHARES" means the Shares issued to the Investor Parties in the Merger or pursuant to the Preferred Stock Subscription Agreement and any Shares subsequently acquired by any Investor Party (and any securities issued or issuable with respect to such Shares by way of stock dividends or stock splits or in connection with a combination of shares, recapitalization, merger, consolidation, or other reorganization or otherwise). "REGISTRABLE MANAGEMENT SHARES" means the Common Shares owned by the Management Stockholders on the date hereof immediately following the consummation of the Merger and any Common Shares subsequently acquired by any Management Stockholders (and any securities issued or issuable with respect to such Common Shares by way of stock dividends or stock splits or in connection with a combination of shares, recapitalization, merger, consolidation, or other reorganization or otherwise). "REGISTRABLE MEZZANINE SHARES" means the Shares issued to the Mezzanine Parties pursuant to the Mezzanine Purchase Agreement and any Shares subsequently acquired by any Mezzanine Party (and any securities issued or issuable with respect to such Shares by way of stock dividends or stock splits or in connection with a combination of shares, recapitalization, merger, consolidation, or other reorganization or otherwise). "REGISTRABLE SHARES" means the Registrable Management Shares, the Registrable Investor Shares and the Registrable Mezzanine Shares; PROVIDED, HOWEVER, that any such Shares will cease to be Registrable Shares when (i) a registration statement covering such Registrable Shares has been declared effective and such Registrable Shares have been disposed of pursuant to such effective registration statement, or (ii) such Registrable Shares are distributed to the public pursuant to Rule 144. "SELLING HOLDER" means, with respect to any registration statement, any Holder whose Registrable Shares are included therein. 4.2 DEMAND REGISTRATIONS. 4.2.1 NUMBER OF REGISTRATIONS. (a) INVESTOR HOLDERS' DEMAND RIGHTS. Notwithstanding any Demand Registrations consummated by the Company pursuant to Section 4.2.1(b) or 4.2.1(c) of this Agreement, commencing on the earlier of (i) the date that is six (6) months after a Public Offering Event, and (ii) the fifth anniversary of the date of this Agreement, Investor Holders, acting collectively as a group, holding an aggregate number of Registrable Investor Shares of a class or series equal to or greater than twenty percent (20%) of the number of Registrable Investor Shares of such class or series outstanding on the date of their Demand shall be entitled to make a Demand of the Company to consummate a Demand Registration of all or part of their Registrable Investor Shares of such class or series and all or part of their Registrable Investor Page 17 Shares of any other class or series; PROVIDED, HOWEVER, that following an initial Demand by Investor Holders pursuant to this Section 4.2.1(a), Investor Holders, acting collectively as a group, holding an aggregate number of Registrable Investor Shares of a class or series equal to or greater than fifteen percent (15%) of the number of Registrable Investor Shares of such class or series outstanding on the date of their Demand shall be entitled to make a Demand of the Company to make a subsequent Demand Registration; and, PROVIDED, FURTHER, that not more than an aggregate of four (4) Demand Registrations with respect to the Registrable Investor Shares may be made pursuant to the rights granted by this Section 4.2.1(a). (b) MANAGEMENT HOLDERS' DEMAND RIGHTS. Notwithstanding any Demand Registrations consummated by the Company pursuant to Section 4.2.1(a) or 4.2.1(c) of this Agreement, commencing on the earlier of (i) the date that is six (6) months after a Public Offering Event, and (ii) the fifth anniversary of the date of this Agreement, Management Holders, acting collectively as a group, holding an aggregate number of Registrable Management Shares at least equal to or greater than thirty-five percent (35%) of the number of Registrable Management Shares outstanding on the date of their Demand shall be entitled to make a Demand of the Company to consummate a Demand Registration of all or part of the Registrable Management Shares; PROVIDED, HOWEVER, that not more than an aggregate of two (2) Demand Registrations with respect to the Registrable Management Shares may be made pursuant to the rights granted by this Section 4.2.1(b). (c) MEZZANINE HOLDERS' DEMAND RIGHTS. Notwithstanding any Demand Registrations consummated by the Company pursuant to Section 4.2.1(a) or 4.2.1(b) of this Agreement, commencing on the earlier of (i) the date that is six (6) months after a Public Offering Event, and (ii) the fifth anniversary of the date of this Agreement, Mezzanine Holders, acting collectively as a group, holding an aggregate number of Registrable Mezzanine Shares of a class or series equal to or greater than thirty-three percent (33%) of the number of Registrable Mezzanine Shares of such class or series outstanding on the date of their Demand shall be entitled to make a Demand of the Company to consummate a Demand Registration of all or part of the Registrable Mezzanine Shares of such class or series; PROVIDED, HOWEVER, that not more than two (2) Demand Registrations with respect to the Registrable Mezzanine Shares may be made pursuant to the rights granted by this Section 4.2.1(c). (d) SELECTION OF UNDERWRITER. Any Demand Registration hereunder shall be on any appropriate form under the Securities Act permitting registration of such Registrable Shares for resale by the Holder making such Demand Registration in the manner or manners designated by them (including, without limitation, pursuant to one or more underwritten offerings). The determination of whether the offering will involve an underwritten offering, and the selection of investment bankers and managers, if any, and counsel, shall be made by the Holders of a majority of the Registrable Shares to be included in such registration, PROVIDED, HOWEVER, that the selection of investment bankers and managers, if any, and counsel so selected shall be reasonably satisfactory to the Company. If requested, the Company shall enter into an underwriting or purchase agreement with an investment banking firm in connection with a Demand Registration, containing representations, warranties, indemnities and agreements then customarily included in underwriting or purchase agreements by such underwriter with respect to Page 18 secondary distributions of securities. For purposes of determining whether a majority of the applicable Registrable Shares are held by the applicable parties under this Article 4, the Common Shares and the Preferred Shares shall be assigned relative values that shall be determined by the Board of Directors acting in good faith. 4.2.2 REGISTRATION. The Company shall file a registration statement with respect to each Demand Registration and use its best efforts to cause the same to be declared effective as promptly as practicable following such Demand, but not later than one hundred twenty (120) days thereafter. Unless all of the Registrable Investor Shares, Registrable Management Shares or Registrable Mezzanine Shares, as applicable, covered by the registration statement have earlier been sold or withdrawn from sale, the Company shall keep any such registration statement effective for a period of at least one hundred eighty (180) days after such registration statement is first declared effective plus a period equal to (x) any period during which the Selling Holders are prohibited from making sales because of any stop order, injunction or other order or requirement of the Commission or any other governmental agency or court plus (y) any Demand Suspension Period (as defined below) plus (z) any holdback period pursuant to Section 4.6 that occurs while the registration statement is effective (the "DEMAND PERIOD") and a registration will not count as a Demand Registration unless it is declared effective by the Commission and remains effective until the earlier of such time as all of the Registrable Investor Shares, Registrable Management Shares or Registrable Mezzanine Shares, as applicable, included in such registration have been sold or disposed of or withdrawn from sale by the Selling Holders and the expiration of the Demand Period or, if the registration remains effective for a shorter period, the Selling Holders have sold at least eighty percent (80%) of each class or series of their respective Registrable Investor Shares, Registrable Management Shares or Registrable Mezzanine Shares, as applicable, included in such Demand Registration. In addition, a request for registration shall not be deemed to constitute a Demand Registration if: (i) the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with such Demand Registration are not satisfied other than by reason of some act or omission by the Investor Holders, the Management Holders or the Mezzanine Holders, as applicable, that are Selling Holders; (ii) the Company voluntarily takes any action that would result in the Selling Holders not being able to sell such Registrable Shares covered thereby during the Demand Period; (iii) after it has become effective, such Demand Registration becomes subject to any stop order, injunction or other order or requirement of the Commission or other governmental agency or court and such order, injunction or requirement is not promptly withdrawn or lifted, and such Demand Registration has not otherwise remained effective for the Demand Period (including effective periods both before and after the order, injunction or requirement is made or imposed); or (iv) such Demand Registration does not involve an underwritten offering and the Investor Holders, the Management Holders or the Mezzanine Holders, as applicable, that are Selling Holders determine not to proceed following any delay imposed hereunder by the Company; PROVIDED, HOWEVER, that, prior to such delay, the Investor Holders, the Management Holders or the Mezzanine Holders, as applicable, that are Selling Holders have not sold more than eighty percent (80%) of each class or series of their respective Registrable Shares included in such Demand Registration. Notwithstanding the foregoing, the Company may, at any time, delay the filing or delay or suspend the effectiveness of the Demand Registration or, without suspending such effectiveness, instruct the Selling Holders not to sell any securities included in the Demand Page 19 Registration, if the Company shall have determined in good faith (as evidenced by a resolution of the Board of Directors delivered to the Selling Holders) that proceeding with the Demand Registration at such time may have a material adverse effect on the Company or the Company shall have determined upon the advice of counsel that it would be required to disclose any actions taken by the Company in good faith and for valid business reasons, including without limitation, the acquisition or divestiture of assets, which disclosure may have a material adverse effect on the Company or on such actions (a "DEMAND SUSPENSION PERIOD"), by providing the Selling Holders with written notice of such Demand Suspension Period and the reasons therefor. The Company shall use its best efforts to provide such notice at least ten (10) days prior to the commencement of such a Demand Suspension Period; PROVIDED, HOWEVER, that in any event the Company shall provide such notice no later than the commencement of such Demand Suspension Period; and PROVIDED, FURTHER, that in no event shall the Demand Suspension Periods exceed ninety (90) days in any three hundred sixty (360) day period. The Company further agrees to supplement or amend such registration statement with respect to such Demand Registration, as required by the registration form utilized by the Company or by the instructions applicable to such registration form or by the Securities Act for the registration of securities or as reasonably requested (which request shall result in the filing of a supplement or amendment subject to approval thereof by the Company and which approval shall not be unreasonably withheld) by any Selling Holder or any managing underwriter of Registrable Shares to which such Demand Registration relates, and the Company agrees to furnish to the Selling Holders (and any managing underwriter) copies, in substantially the form proposed to be used and/or filed, of any such supplement or amendment prior to its being used and/or filed with the Commission. The Company shall amend or supplement the registration statement with respect to such Demand Registration no less frequently than every forty five (45) days to update the list of Selling Holders pursuant to written requests by such Holders. 4.2.3 INCLUSION OF REGISTRABLE SHARES. Any Demand shall specify the number of Registrable Investor Shares, Registrable Management Shares or Registrable Mezzanine Shares, as applicable, to be registered and the intended methods of disposition thereof. Within ten (10) days after receipt of such Demand, the Company shall give written notice of such registration request to all Holders of Registrable Investor Shares, Registrable Management Shares or Registrable Mezzanine Shares, as applicable, that have not made the Demand, and the Company shall include in such registration all Registrable Investor Shares, Registrable Management Shares or Registrable Mezzanine Shares, as applicable, with respect to which the Company has received written requests for inclusion therein within fifteen (15) days after the date on which such notice is given. Each such request shall also specify the aggregate number of Registrable Investor Shares, Registrable Management Shares or Registrable Mezzanine Shares, as applicable, to be registered. Subject to the priority provisions of Section 4.2.4, the Company may also include in such Demand Registration shares of Common Stock for the account of the Company and any other Persons who hold shares of Common Stock. 4.2.4 PRIORITY ON DEMAND REGISTRATIONS. If a Demand Registration is an underwritten registration and the managing underwriter(s) of such offering determine in good faith that the aggregate number of (i) Registrable Investor Shares, Registrable Management Page 20 Shares or Registrable Mezzanine Shares, as applicable, of the Selling Holders exercising their rights to participate in the Demand Registration on a demand basis pursuant to this Section 4.2 or on a piggyback basis pursuant to Section 4.3, (ii) securities of the Company to be sold by the Company and (iii) securities of the Company to be sold by any Other Holders, in each case proposed to be included in such registration statement, exceeds the maximum number of securities that can reasonably be expected to be sold within a price range acceptable to the Investor Holders, the Management Holders or the Mezzanine Holders, as applicable, that made the Demand, then the total number of securities of the Company to be offered for the account of the Selling Holders, the Company and any Other Holders in such registration shall be reduced or limited PRO RATA (and to zero, if necessary) in proportion to the respective number of securities requested to be registered to the extent necessary to reduce the total number of securities requested to be included in such registration to the maximum number of securities that can reasonably be expected to be included therein and still satisfy such price requirement. Any request for registration with respect to which such a market "cutback" occurs shall be deemed to constitute a Demand Registration for all purposes of this Article 4; PROVIDED, HOWEVER, that if any such market "cutback" occurs with respect to a Demand Registration and all such Selling Holders that made the Demand are not able to sell at least eighty percent (80%) of each class of the Registrable Shares that such Selling Holders proposed to sell pursuant to such Demand Registration, then such request for registration will not count against the number of Demands to which the Investor Holders, the Management Holders or the Mezzanine Holders, as applicable, that made the Demand are entitled pursuant to this Section 4.2. For purposes of determining the necessity of a market "cutback" with respect to any Demand Registration pursuant to this Section 4.2, and the allocations to the Company and holders of securities of the Company resulting therefrom, calculations that involve the number of securities of the Company shall be made on a fully-diluted basis, as applicable, or as otherwise determined in good faith by the Board of Directors. 4.2.5 COMPLIANCE. Notwithstanding any other provisions hereof, the Company shall use its best efforts to ensure that (i) any registration statement filed in connection with a Demand Registration pursuant to this Section 4.2 or a piggyback registration pursuant to Section 4.3, and any amendment thereto, and any prospectus forming a part thereof, and any supplement thereto, complies in all material respects with the Securities Act, (ii) any registration statement filed in connection with a Demand Registration pursuant to this Section 4.2 or a piggyback registration pursuant to Section 4.3, and any amendment thereto, does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (iii) any prospectus forming part of any registration statement filed in connection with a Demand Registration pursuant to this Section 4.2 or a piggyback registration pursuant to Section 4.3, and any supplement to such prospectus, does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in the light of the circumstances under which they are made, not misleading. Page 21 4.3 PIGGYBACK REGISTRATION. 4.3.1 RIGHT TO INCLUDE REGISTRABLE SHARES. If the Company at any time proposes to register any of its equity securities under the Securities Act, whether or not for sale for its own account and whether or not on account of receipt by the Company of a Demand pursuant to Section 4.2.1(a), 4.2.1(b) or 4.2.1(c), on a form and in a manner that would permit registration of Registrable Shares for a public offering under the Securities Act (other than on a registration statement (i) on Form S-4 or Form S-8 or any successor form thereto, (ii) filed in connection with a Public Offering Event, or (iii) filed in connection with an exchange offer), the Company shall give written notice of the proposed registration to each Holder of Registrable Shares at least fifteen (15) days prior to the filing thereof, and each Holder shall have the right to request that all or any part of such Holder's Registrable Shares be included in such registration by giving written notice to the Company within fifteen (15) days after the giving of such notice by the Company. If the registration statement is to cover an underwritten offering, such Registrable Shares shall be included in the underwriting on the same terms and conditions as the securities otherwise being sold through the underwriters. Notwithstanding the foregoing, a Management Holder may not request the registration of his or her respective Registrable Management Shares if such Registrable Management Shares may, at the time (or within thirty days thereafter), be distributed to the public pursuant to paragraph (k), as such paragraph may be amended from time to time, or any other similar provision hereafter adopted by the Commission, of Rule 144. 4.3.2 PRIORITY ON PIGGYBACK REGISTRATIONS. (a) COMPANY REGISTRATIONS. If the registration is an underwritten primary registration on behalf of the Company and not as the result of a Demand pursuant to Section 4.2.1(a), 4.2.1(b) or 4.2.1(c), and the managing underwriter(s) of such offering determine in good faith that the aggregate number of (i) securities of the Company to be sold by the Company; (ii) Registrable Shares of the Selling Holders exercising their rights to participate in the registration on a "piggyback" basis pursuant to this Section 4.3 and (iii) securities of the Company to be sold by Other Holders, in each case proposed to be included in such registration statement, exceeds the maximum number of securities that can reasonably be expected to be sold in such offering without materially and adversely affecting the marketability of the offering or the selling price to be obtained, then the Company will include in such registration, FIRST, the securities that the Company proposes to sell and, SECOND, the securities to be offered for the account of the Selling Holders and any Other Holders PRO RATA among all such Selling Holders and Other Holders, taken together, on the basis of the number of securities of the Company requested to be included by all Selling Holders and Other Holders who have requested that securities owned by them be so included (it being agreed and understood, however, that such managing underwriter(s) shall have the right to eliminate entirely the participation in such registration of all Selling Holders and Other Holders). For purposes of determining the necessity of a market "cutback" with respect to any piggyback registration pursuant to this Section 4.3, and the allocations to the Company and/or holders of securities of the Company resulting therefrom, calculations that involve the number of securities of the Company shall be made on a fully-diluted basis, as applicable, or as otherwise determined in good faith by the Board of Directors. Page 22 (b) OTHER HOLDERS' REGISTRATION. If the registration is an underwritten secondary registration on behalf of Other Holders pursuant to demand registration rights arising from a document other than this Agreement and the managing underwriter(s) determine in good faith that the aggregate number of (i) securities of the Company to be sold by the Company, (ii) Registrable Shares of the Selling Holders exercising their rights to participate in the registration on a "piggyback" basis pursuant to this Section 4.3 and (iii) securities of the Company to be sold by the Other Holders, in each case proposed to be included in such registration statement, exceeds the maximum number of securities that can reasonably be expected to be sold within the price range acceptable to the Other Holders, then the total number of securities to be offered in such registration shall be reduced or limited PRO RATA (and to zero, if necessary) in proportion to the respective number of securities requested to be registered to the extent necessary to reduce the total number of securities requested to be included in such registration to the maximum number of securities that can reasonably be expected to be included therein and still satisfy such price requirement. (c) UNDERWRITERS. Except in the case of a Demand Registration, the Registrable Shares proposed to be registered and sold for the account of any Selling Holder pursuant to a piggyback registration shall be sold to prospective underwriters selected or approved by the Company, and on the terms and subject to the conditions of one or more underwriting agreements negotiated between the Company, the Investor Holders, if any, the Management Holders, if any, the Mezzanine Holders, if any, the Other Holders, if any, and such prospective underwriters. The Selling Holders shall be permitted to withdraw all or a part of the Registrable Shares held by such Selling Holders that were to be included in such piggyback registration at any time prior to the effective date of such registration. The Company may withdraw any registration statement for such registration at any time before it becomes effective, or postpone the offering of securities, without obligation or liability to any Selling Holder participating on a piggyback basis. 4.4. REGISTRATION STATEMENT. In connection with any registration of Registrable Shares under the Securities Act pursuant to this Agreement, the Company will furnish each Selling Holder and each underwriter, if any, with a copy of the registration statement and all amendments thereto and will supply each such Selling Holder with copies of any prospectus included therein (including a preliminary prospectus and all amendments and supplements thereto), in each case including all exhibits, and such other documents as may be reasonably requested, in such quantities as may be reasonably necessary for the purposes of the proposed sale or distribution covered by such registration (the Company hereby consenting to the use in accordance with all applicable law of each such registration statement (or amendment or post-effective amendment thereto) and each such prospectus (or preliminary prospectus or supplement thereto) by each such Selling Holder and the underwriters, if any, in connection with the offering and sale of the Registrable Shares covered by such registration statement or prospectus). The Company shall not, however, be required to maintain the registration statement relating to a Demand Registration and to supply copies of a prospectus for a period beyond the Demand Period, and, at the end of such period, the Company may deregister any Registrable Shares covered by such registration statement and not then sold or distributed. In connection with any such registration of Registrable Shares, the Company will, at the request of the managing Page 23 underwriter with respect thereto (or, if not an underwritten offering, at the request of Selling Holders holding a majority of the Registrable Shares to be included in the registration), use its best efforts to register or qualify such Registrable Shares for sale under the securities laws of such states as is reasonably requested to permit the distribution of such Registrable Shares and to use its reasonable efforts to keep each such registration or qualification effective during the period such registration statement is required to be kept effective and to do such other acts or things reasonably necessary to enable the disposition in such jurisdictions of the securities covered by the applicable registration statement in accordance with applicable "blue sky" securities laws of such jurisdictions; PROVIDED, HOWEVER, that the Company shall not be required in connection therewith or as a condition thereof to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction or become subject to taxation in any jurisdiction. In connection with any offering of Registrable Shares registered pursuant to this Agreement, the Company shall (i) furnish each Selling Holder, at the Company's expense and at least three (3) business days prior to the sale of any Registrable Shares to the underwriters, with unlegended certificates in a form eligible for deposit with The Depository Trust Company representing ownership of the Registrable Shares that are sold pursuant to the registration statement, in such denominations and registered in such names as the managing underwriter, if any, or such Selling Holder shall reasonably request, and (ii) instruct the transfer agent and registrar of the Registrable Shares to release any stop transfer orders with respect to the Registrable Shares so sold. 4.5. REGISTRATION PROCEDURES. In connection with the Company's obligations to effect a registration pursuant to Sections 4.2 and 4.3 (but subject to the last sentence of Section 4.3.2(d) and PROVIDED that any time periods set forth in this Section 4.5 regarding effective periods and the like shall apply only in the event of a Demand Registration), the Company will as expeditiously as is reasonably practicable: (i) prepare and file with the Commission as soon as practicable (in the case of a Demand Registration) a registration statement with respect to such Registrable Shares, on a form available for the sale of the Registrable Shares by the Holders thereof in accordance with the intended method or methods of distribution thereof and use its commercially reasonable efforts to cause each such registration statement to become and remain effective; PROVIDED, HOWEVER, that before filing a registration statement or prospectus or any amendments or supplements thereto (including documents that would be incorporated or deemed to be incorporated therein by reference) and, whether or not filed pursuant to Section 4.2 or 4.3, the Company will furnish to the Holders of the Registrable Shares covered by such registration statement and the underwriters, if any, and any attorney, accountant or other agent retained by the Holders of Registrable Shares covered by such registration statement, copies of all such documents proposed to be filed, which documents will be subject to the review and comment of such Holders, such counsel and underwriters, if any. The Company will not file any registration statement or any amendment thereto or any prospectus or any supplement thereto in connection with a Demand Registration pursuant to Section 4.2 (including such documents incorporated by reference and proposed to be filed after the initial filing of the registration statement) to which Page 24 the Holders of a majority of the Registrable Shares covered by such registration statement or the underwriters, if any, shall reasonably and timely object; (ii) prepare and file with the Commission such amendments and post-effective amendments to such registration statement and such supplements to the prospectus used in connection therewith as may be necessary to keep such registration statement effective (to the extent otherwise required by this Agreement) and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement or the expiration of the Demand Period (in the case of a Demand Registration), whichever occurs earlier; PROVIDED, HOWEVER, that the only remedy for any failure to keep the registration statement so effective shall be as set forth in Section 4.2.2 and, PROVIDED, FURTHER, that the Company will have no obligation to a Selling Holder participating on a "piggyback" basis in a registration statement that has become effective to keep such registration statement effective for a period beyond 120 days from the effective date of such registration statement; (iii) cooperate and assist in any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"); (iv) notify each Selling Holder and the managing underwriter, if any, promptly (and in any event within three (3) business days): (A) when the prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to the registration statement or any post-effective amendment, when the same has become effective; (B) of any request by the Commission or any other federal or state governmental authority for any amendments or supplements to the registration statement or the prospectus or for additional information; (C) of the issuance by the Commission of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose; (D) if, at any time prior to the closing contemplated by an underwriting agreement or such other agreement entered into in connection with such registration statement, the representations and warranties of the Company contained in such agreement cease to be true and correct; (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (F) of the happening of any event that makes any statement made in the registration statement, the prospectus or any document incorporated or deemed to be incorporated therein by reference untrue or that requires the making of any changes in the registration statement, the prospectus or any document incorporated therein by reference in order to make the statements therein not misleading; and (G) of the Company's reasonable determination that a post-effective amendment to a registration statement would be required; (v) make commercially reasonable efforts to prevent the issuance of any order suspending the effectiveness of the registration statement or of any order preventing or suspending the use of a prospectus or suspending the qualification of any of the Registrable Shares included therein for sale in any jurisdiction (subject to the proviso at the end of the first paragraph of Section 4.4), and, in the event of the issuance of any stop order suspending the Page 25 effectiveness of the registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any Registrable Shares included in such registration statement for sale in any jurisdiction (subject to the proviso at the end of the first paragraph of Section 4.4), the Company will use its best efforts to promptly obtain the withdrawal of any such order; (vi) furnish to each Selling Holder and the managing underwriters, if any, without any additional charge, one signed copy of the registration statement and any post-effective amendment thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference); (vii) as promptly as reasonably practicable, if required, based on the advice of the Company's counsel or upon the occurrence of any event contemplated by Section 4.5(iv)(F), prepare and file a supplement or post-effective amendment to the registration statement, the related prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Shares, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (viii) cause all Registrable Shares covered by the registration statement to be listed on each securities exchange on which identical securities issued by the Company are then listed if requested by the Selling Holders holding a majority of the Registrable Shares covered by the registration statement or the managing underwriters, if any; (ix) provide and cause to be maintained a transfer agent and registrar for all Registrable Shares covered by such registration statement from and after a date not later than the effective date of such registration statement; (x) use its best efforts to provide a CUSIP number for the Registrable Shares, not later than the effective date of the registration statement; (xi) use its best efforts to (A) obtain opinions of counsel to the Company (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and not objected to by the Holders of a majority of the Registrable Shares being sold), and updates thereof addressed to the Selling Holders, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by the underwriters, if any; and (B) obtain "cold comfort" letters and updates thereof (which letters and updates (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and counsel to the Holders of a majority of the Registrable Shares being sold) from the Company's independent certified public accountants addressed to such Selling Holders (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the registration statement), such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters by accountants in connection with underwritten offerings and such other matters as the underwriters, if any, or the Holders of a majority of the Page 26 Registrable Shares being sold, reasonably request. The above shall be done at each closing under such underwriting or similar agreement or as and to the extent required thereunder or, if not an underwritten offering, as otherwise reasonably requested by the Holders of a majority of the Registrable Shares being sold; (xii) make available for inspection by a representative of the Selling Holders and any attorneys or accountants retained by such Holders (and, to the extent reasonably requested, furnish copies), in connection with the preparation of a registration statement pursuant to this Agreement, all financial and other records and pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such representative(s), attorney(s) or accountant(s) in connection with such registration; PROVIDED, HOWEVER, that any records, information or documents that are designated by the Company in writing as confidential shall be kept confidential by such persons unless disclosure of such records, information or documents is required by court or administrative order or under applicable law; and PROVIDED, FURTHER, that appropriate arrangements are made, to the extent required by applicable antitrust law, to limit access to such information of the Company to representatives of the Holders who are not officers or employees of the Selling Holders; and PROVIDED, FURTHER, that, without limiting the foregoing, no such information shall be used by any such Person in connection with any market transactions in securities of the Company or its subsidiaries in violation of law; (xiii) enter into such agreements reasonably requested (including, as applicable, an underwriting agreement in form, scope and substance as is customary in underwritten secondary offerings and is reasonably satisfactory to the Company) and take all such other customary and reasonable actions in connection therewith (including those requested by the managing underwriters) in order to expedite or facilitate the disposition of the Registrable Shares, and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration: (a) make such representations and warranties to the Holders of such Registrable Shares included in the registration statement and the underwriters, if any, with respect to the business of the Company and the registration statement, prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings and confirm the same, if and when reasonably requested; and (b) deliver such documents and certificates as may be reasonably requested by the Holders of a majority of the Registrable Shares being included in the registration statement and managing underwriters, if any, to evidence compliance with clause (a) above and with any provisions contained in the underwriting agreement or other similar agreement entered into by the Company. Page 27 The above shall be done at each closing under such underwriting or similar agreement or as and, if not an underwritten offering, to the extent otherwise reasonably requested by the Holders of a majority of the Registrable Shares being sold pursuant to the registration statement; (xiv) (A) if so required by the managing underwriter in an underwritten offering affording Holders of Registrable Shares registration rights pursuant to Section 4.2 or 4.3, not publicly or privately sell, make any short sale of, loan, grant any option, effect any public sale or distribution of or otherwise dispose of its equity securities or securities convertible into or exchangeable or exercisable for any of such securities during the ten (10) days prior to, and the ninety (90) days after, any underwritten registration pursuant hereto has become effective, except as part of such underwritten registration and except pursuant to any exchange offer or registrations on Form S-4 or S-8 or any successor or similar forms thereto, except that the Company may make grants of options under its stock option plans and may issue securities issuable upon the exercise or conversion of outstanding convertible securities, stock options and other options, warrants and rights of the Company and (B) if requested, use reasonable efforts to cause each holder of ten percent (10%) or more of the securities of the same class as the securities included in any underwritten registration pursuant to Section 4.2, or any securities convertible into or exchangeable or exercisable for such securities, in each case purchased from the Company at any time after the date of this Agreement (other than in a registered public offering) to agree not to effect any public or private sale or distribution or otherwise dispose (including sales pursuant to Rule 144) of any such securities during the ten (10) days prior to, and the ninety (90) days after, any underwritten registration pursuant hereto has become effective (except as part of such underwritten registration, if otherwise permitted), unless the underwriters managing the registered public offering otherwise agree; (xv) if requested, furnish each Selling Holder with a copy (or a reasonable number of copies, as requested) of the registration statement (together with the Exhibits thereto) and each amendment thereto prior to the filing thereof with the Commission; (xvi) if requested by the managing underwriters, if any, or a Holder of Registrable Shares being sold, promptly incorporate in a prospectus, supplement or post-effective amendment such information as the managing underwriters, if any, and the Holders of the Registrable Shares being sold reasonably request to be included therein relating to the sale of the Registrable Shares, including, without limitation, information with respect to the number of Registrable Shares being sold to underwriters, the purchase price being paid therefor by such underwriters and with respect to any other terms of the underwritten offering of the Registrable Shares to be sold in such offering; and make all required filings of such prospectus, supplement or post-effective amendment promptly following notification of the matters to be incorporated in such supplement or post-effective amendment; (xvii) upon the occurrence of any event that would cause a shelf registration statement (A) to contain a material misstatement or omission or (B) to be not effective and usable for resale of Registrable Shares during the Demand Period, the Company shall promptly file an amendment to such shelf registration statement, in the case of clause (A), correcting any such misstatement or omission and, in the case of either clause (A) or (B), use its commercially Page 28 reasonable efforts to cause such amendment to be declared effective and such shelf registration statement to become usable as soon as reasonably practicable thereafter; (xviii) otherwise use its best efforts to (A) comply with all applicable rules and regulations of the Commission and to take all other steps reasonably necessary to effect the registration of the Registrable Shares covered by the registration statement contemplated hereby, and (B) make available to its securityholders an earnings statement that satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than forty-five (45) days after the end of any twelve-month (12) period (or ninety (90) days after the end of any twelve-month (12) period if such period is a fiscal year) (or in each case within such extended period of time as may be permitted by the Commission for filing the applicable report with the Commission) (i) commencing at the end of any fiscal quarter in which Registrable Shares are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a registration statement, which statements shall cover said twelve-month (12) periods; and (xix) in connection with any underwritten offering, cooperate with all marketing efforts reasonably requested by the managing underwriter(s) in connection with the sale of the Registrable Shares, including, without limitation, participation in a reasonable number of road-show presentations (in major U.S. financial cities) and other marketing activity by Management Stockholders and other employees of the Company requested by such underwriter or underwriters PROVIDED that the scheduling of the road-show presentations shall be set in consultation with the Company and will not require the Company's involvement at any time or place to which the Company has a reasonable objection. 4.6 HOLDBACK AGREEMENTS; RESTRICTIONS ON PUBLIC SALE BY HOLDERS OF REGISTRABLE SHARES. Each Holder of Registrable Shares (whether or not such Registrable Shares are covered by a registration statement filed pursuant to Section 4.2 or 4.3) agrees, if requested (pursuant to a timely written notice) by the managing underwriter(s) in an underwritten offering, not to effect any public sale or distribution of any of the Company's securities (excluding any public sale or distribution of the Company's securities by a diversified investment company that is affiliated with a Holder and is registered under the Investment Company Act of 1940 in connection with trading activities in the ordinary course of business), including a sale pursuant to Rule 144 (except as part of such underwritten offering), during the period beginning ten (10) days prior to, and ending one hundred eighty (180) days after, the closing date of the underwritten offering made pursuant to such registration statement. The foregoing provisions (the "HOLDBACK RESTRICTIONS") shall not apply to any Holder of Registrable Shares if (i) such Holder is prevented by applicable statute or regulation from entering into any such agreement; PROVIDED, HOWEVER, that any such Holder shall undertake not to effect any public sale or distribution of the class of securities covered by such registration statement (except as part of such underwritten offering) during such period unless it has provided sixty (60) days' prior written notice of such sale or distribution to the managing underwriter, or (ii) the Company's directors, executive officers or holders of 5% or more of the class of securities Page 29 covered by such registration statement do not agree to be subject to restrictions that are reasonably equivalent to the Holdback Restrictions. 4.7 REGISTRATION EXPENSES. Except as otherwise required by state securities laws or the rules and regulations promulgated thereunder, all expenses, disbursements and fees incurred by the Company in connection with carrying out its obligations under this Article 4, including but not limited to (i) the reasonable and documented fees and expenses of one counsel for the Selling Holders (which counsel shall be selected by Holders of a majority of the Registrable Shares included in the applicable registration), (ii) all registration and filing fees and expenses, including fees with respect to filings made with the NASD (including, if applicable, the fees and expenses of any "qualified independent underwriter" and its counsel, as may be required by the rules and regulations of the NASD), (iii) fees and expenses of compliance with securities or blue sky laws (including fees and disbursements of counsel for the underwriters or Selling Holders in connection with blue sky qualifications of the Registrable Shares and determinations of their eligibility for investment under the laws of such jurisdiction as the managing underwriters or Holders of a majority of the Registrable Shares being sold may designate, subject to the proviso to the last sentence of the first paragraph of Section 4.4), (iv) printing expenses (including printing certificates for the Registrable Shares to be sold and the registration statements and prospectuses), messenger and delivery expenses, duplication expenses, word processing expenses and telephone expenses, (v) fees and disbursements of counsel for the Company, and (vi) fees and disbursements of all independent certified public accountants of the Company incurred in connection with such registration (including the expenses of any special audit and "cold comfort" letters incident to such registration) and fees and disbursements of underwriters (excluding discounts, commissions or fees of underwriters, selling brokers, dealer managers or similar securities industry professionals relating to the distribution of the Registrable Shares) and other Persons retained by the Company (all such expenses being herein called "REGISTRATION EXPENSES"), will be borne by the Company regardless of whether a registration statement becomes effective; PROVIDED, HOWEVER, that the Company will, in any event, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit or quarterly review, the fees and expenses of any Person, including special experts, retained by the Company, the expense of any liability insurance and the expenses and fees for listing the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed or on the NASD automated quotation system; and, PROVIDED, FURTHER, that each Selling Holder shall pay (x) all costs and expenses of counsel (other than the counsel costs referred to in (i) above) and accounting or financing professionals retained by such Selling Holder, (y) all underwriting discounts, commissions, fees and expenses and all transfer taxes with respect to the Shares sold by such Selling Holder, and (z) all other expenses incurred by such Selling Holder and incidental to the sale and delivery of the Shares to be sold by such Holder. 4.8 CONDITIONS TO HOLDER'S RIGHTS. It shall be a condition of each Selling Holder's rights under this Article 4 that: 4.8.1 COOPERATION. Such Selling Holder shall cooperate with the Company by supplying information and executing documents relating to such Selling Holder or the securities Page 30 of the Company owned by such Selling Holder in connection with such registration that are customary for offerings of this type (including agreeing to sell such Selling Holder's Registrable Shares on the basis provided in any underwriting arrangements containing customary terms reasonably satisfactory to such Selling Holder); 4.8.2 UNDERTAKINGS. Such Selling Holder shall enter into any undertakings and take such other action relating to the conduct of the proposed offering that the Company or the underwriters may reasonably request as being necessary to insure compliance with federal and state securities laws and the rules or other requirements of the NASD or that the Company or the underwriters may reasonably request to otherwise effectuate the offering; and 4.8.3 INDEMNIFICATION. Such Selling Holder shall execute and deliver an agreement to indemnify to the fullest extent permitted by law and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, any underwriter (as defined in the Securities Act), and each person, if any, who controls the Company or such underwriter within the meaning of the Securities Act, against such losses, claims, damages or liabilities (including reimbursement for legal and other expenses) to which the Company or any such director, officer, underwriter or controlling person may become subject under the Securities Act or otherwise, in such manner as is customary for registrations of the type then proposed, but only with respect to written information about or pertaining to such Selling Holder furnished by such Selling Holder specifically for inclusion in the Registration Statement. 4.9 INDEMNIFICATION. 4.9.1 INDEMNIFICATION BY THE COMPANY. In the case of any offering registered pursuant to this Agreement, the Company agrees to indemnify to the fullest extent permitted by law and hold each Selling Holder, each affiliate of such Selling Holder, each director, officer, agent, representative and employee of such Selling Holder and its affiliates, each Person who controls each Selling Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and the directors, officers, agents or employees of each such controlling Person (collectively, "SELLING HOLDER INDEMNIFIED PERSONS") harmless against any and all losses, claims, damages, liabilities and actions (including reasonable and documented costs (including, without limitation, costs of preparation and reasonable attorneys' fees and disbursements) and expenses, including reasonable expenses of investigation) (collectively "LOSSES") to which they or any of them may become subject under the Securities Act or any other statute or common law or otherwise, insofar as any such Losses shall arise out of, be caused by or shall be based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the registration statement relating to the sale of the Registrable Shares covered thereby, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus (as amended or supplemented if the Company shall have filed with the Commission any amendment thereof or supplement thereof), if used prior to the effective date of such registration statement, or contained in the prospectus (as amended or supplemented if the Company shall have filed with the Commission any amendment thereof or supplement thereof, including the Page 31 information deemed part of such registration statement pursuant to Rule 430A promulgated under the Securities Act), if used within the period during which the Company shall be required to keep the registration statement to which such prospectus relates current pursuant to the terms of this Agreement, or the omission or alleged omission to state therein (if so used) a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Company agrees to reimburse each Selling Holder Indemnified Person for any legal or other expenses reasonably incurred by such Selling Holder Indemnified Person in connection with investigating or defending any such action or claim as such expenses are incurred; PROVIDED, HOWEVER, that the indemnification agreement contained in this Section 4.9.1 shall not apply to such Losses that shall arise from the sale of Registrable Shares to any Person if such Losses shall arise out of, shall be caused by or shall be based upon any such untrue statement or alleged untrue statement, or any such omission or alleged omission, if such statement or omission shall have been made in reliance upon and in conformity with information furnished in writing to the Company by such Selling Holder specifically for use in connection with the preparation of the registration statement or any preliminary prospectus or prospectus contained in the registration statement or any such amendment thereof or supplement thereto. This indemnity shall be in addition to any other indemnification arrangements to which the Company may otherwise be a party. 4.9.2 INDEMNIFICATION BY HOLDERS OF REGISTRABLE SHARES. Each Selling Holder agrees to indemnify to the fullest extent permitted by law and hold the Company, its directors, officers, agents, representatives and employees, each Person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and the directors, officers, agents, representatives or employees of such controlling persons harmless against any and all Losses arising out of, caused by or based upon any untrue statement of a material fact contained in any registration statement, prospectus or form of prospectus, or arising out of, caused by or based upon any omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of the preliminary prospectus and the prospectus, in each case, including amendments or supplements, in light of the circumstances in which they were made) not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any information furnished in writing by such Selling Holder to the Company, expressly for use in such registration statement or prospectus; PROVIDED, HOWEVER, that the obligation to indemnify will be several and not joint and in no event shall the liability of any Selling Holder hereunder be greater in amount than the dollar amount of the proceeds (net of the payment of underwriting discounts and commissions payable by such Selling Holder) received by any such Selling Holder upon the sale of the Registrable Shares giving rise to such indemnification obligation. The Company and the Selling Holders shall be entitled to receive indemnities from underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution to the same extent as provided above with respect to information so furnished in writing by such Persons expressly for use in any prospectus or registration statement. 4.9.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to indemnity under this Agreement (an "INDEMNIFIED PARTY") shall give prompt written notice to the party from which such indemnity is sought (the "INDEMNIFYING PARTY") of any claim or of Page 32 the commencement of any proceeding with respect to which such Indemnified Party seeks indemnification or contribution pursuant hereto; PROVIDED, HOWEVER, that the failure so to notify the Indemnifying Party shall not relieve the indemnifying party from any obligation or liability except to the extent that the Indemnifying Party has been prejudiced materially by such failure. The Indemnifying Party shall have the right (exercisable by giving written notice to an Indemnified Party promptly after the receipt of written notice from such Indemnified Party of such claim or proceeding) to assume, at the Indemnifying Party's expense, the defense of any such claim or proceeding, with counsel reasonably satisfactory to such Indemnified Party; PROVIDED, HOWEVER, that under such circumstances an Indemnified Party shall have the right to employ separate counsel in any such claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless: (1) the Indemnifying Party agrees to pay such fees and expenses; or (2) the Indemnifying Party fails promptly to assume the defense of such claim or proceeding or fails to employ counsel reasonably satisfactory to such Indemnified Party; or (3) the Indemnified Party shall have been advised by counsel that (i) there may be one or more material defenses available to such Indemnified Party that are different from or additional to those available to the Indemnifying Party or its affiliates, or (ii) a conflict of interest likely exists if such counsel represents such Indemnified Party and such Indemnifying Party or its affiliate, in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof, it being understood, however, that the Indemnifying Party shall not, in connection with any one such claim or proceeding, or separate but substantially similar or related claims or proceedings arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel, which such counsel shall be designated by the Indemnified Party and be reasonably acceptable to the Indemnifying Party) at any time for such Indemnified Party, or for fees and expenses that are not reasonable. Whether or not such defense is assumed by the Indemnifying Party, such Indemnifying Party will not be subject to any liability for any settlement made without its consent (which consent shall not be unreasonably withheld). The Indemnifying Party shall not consent to entry of any judgment or settle or compromise any pending or threatened claim, action or proceeding, unless it contains as an unconditional term thereof the giving by the claimant or plaintiff to the Indemnified Party of a release, in form and substance satisfactory to such Indemnified Party, from all liability in respect of such claim or litigation for which such Indemnified Party would be entitled to indemnification hereunder. The Indemnifying Party's liability to any such Indemnified Party hereunder shall not be extinguished solely because any other Indemnified Party is not entitled to indemnity hereunder. 4.9.4 CONTRIBUTION. If the indemnification provided for in this Section 4.9 is unavailable to an Indemnified Party for any reason in respect of any Losses or is insufficient to hold such Indemnified Party harmless, then, except to the extent that contribution is not permitted under Section 11(f) of the Securities Act, each applicable Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in Page 33 such proportion as is appropriate to reflect the relative fault of the Indemnifying Party, on the one hand, and such Indemnified Party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations appropriate under the circumstances. The relative fault of such Indemnifying Party, on the one hand, and such Indemnified Party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue statement of a material fact or omission to state a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information concerning the matter with respect to which the claim was asserted and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 4.9.4 were determined by PRO RATA allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 4.9.4, no Indemnifying Party that is a Selling Holder shall be required to contribute any amount in excess of the amount by which the net proceeds received by such Selling Holder from the sale of Registrable Shares exceeds the amount of any damages that such Selling Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The indemnity and contribution agreements contained in this Section 4.9 are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties. 4.9.5 UNDERWRITING AGREEMENT TO GOVERN. At such time as an underwriting agreement with respect to a particular underwriting is entered into, the terms of any such underwriting agreement shall govern with respect to the matters set forth therein to the extent inconsistent with this Section 4.9 PROVIDED that the indemnification provisions of such underwriting agreement as they relate to Selling Holders shall be customary for registrations of the type then proposed and shall provide for indemnification by such Selling Holders only with respect to written information furnished by such Selling Holders. 4.10 RULE 144. Following a Public Offering Event, the Company shall file the reports required to be filed by it under the Securities Act and the Exchange Act and will take such further action as any Holder of Registrable Shares may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144. Upon the request of any Holder of Registrable Shares, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. Page 34 ARTICLE 5. REPRESENTATIONS AND WARRANTIES 5.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Stockholders as follows: 5.1.1 ORGANIZATION. It is a corporation duly organized and validly existing under the laws of the State of Delaware; 5.l.2 AUTHORITY. It has full corporate power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; 5.1.3 BINDING OBLIGATION. The execution, delivery and performance of this Agreement by it and the consummation by it of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on its part, and this Agreement constitutes its binding obligation, enforceable against it in accordance with its terms, except insofar as enforceability may be limited by bankruptcy, insolvency, moratorium or other laws that may affect creditors rights and remedies generally and by principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law); and 5.1.4 NO CONFLICT. The execution, delivery and performance of this Agreement by it and the consummation by it of the transactions contemplated hereby will not, with or without the giving of notice or the lapse of time, or both, (i) violate any provision of law, statute, rule or regulation to which it is subject, (ii) violate any order, judgment or decree applicable to it, or (iii) conflict with, or result in a breach or default under, any term or condition of its certificate of incorporation or its bylaws or any material agreement or other material instrument to which it is a party or by which it or its property is bound. 5.2 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each of the Stockholders represents and warrants to each other and to the Company as follows: 5.2.1 ORGANIZATION. If it is an entity, it is a corporation, limited partnership, limited liability company or other entity duly organized and validly existing under the laws of its respective state of organization; 5.2.2 AUTHORITY. It has full power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; 5.2.3 BINDING OBLIGATION. The execution, delivery and performance of this Agreement by it and the consummation by it of the transactions contemplated hereby have been duly and validly authorized by all necessary action on its part, and this Agreement constitutes its binding obligation, enforceable against it in accordance with its terms, except insofar as enforceability may be limited by bankruptcy, insolvency, moratorium or other laws that may affect creditors' rights and remedies generally and by principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law); and Page 35 5.2.4 NO CONFLICT. The execution, delivery and performance of this Agreement by it and the consummation by it of the transactions contemplated hereby will not, with or without the giving of notice or the lapse of time, or both, (i) violate any provision of law, statute, rule or regulation to which it is subject, (ii) violate any order, judgment or decree applicable to it, or (iii) conflict with, or result in a breach or default under, any term or condition of its certificate or articles of incorporation, organizational documents, bylaws, trust, partnership agreement, operating agreement or equivalent governing document or any material agreement or other material instrument to which it is a party or by which it or its property is bound. ARTICLE 6. TERMINATION OF AGREEMENT Subject to the next succeeding sentence, this Agreement shall terminate ten (10) years from the date of this Agreement with respect to all rights and obligations pertaining to Common Shares and this Agreement shall terminate twelve (12) years from the date of this Agreement with respect to all rights and obligations pertaining to Preferred Shares. If any rights and obligations provided in Article 1, Article 3, Section 2.3, Section 2.4, Section 2.5, Section 2.6, Section 2.7, Section 2.8 or Section 2.9 of this Agreement have not terminated earlier in accordance with the preceding sentence, such rights and obligations shall terminate on the date of a Public Offering Event. ARTICLE 7. GENERAL 7.1 RECAPITALIZATION, EXCHANGES, ETC., AFFECTING THE SHARES. The provisions of this Agreement shall apply to the full extent set forth herein with respect to (a) the Shares and any option, right or warrant to acquire Shares, and (b) any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) that may be issued in respect of, in exchange for, or in substitution for any Shares by combination, recapitalization, reclassification, merger, consolidation or otherwise. In the event of any change in the capitalization of the Company as a result of any stock split, stock dividend or stock combination, the provisions of this Agreement shall be appropriately adjusted. 7.2 INJUNCTIVE RELIEF. It is hereby agreed and acknowledged that it will be impossible to measure in money the damages that would be suffered if the parties fail to comply with any of the obligations herein imposed on them and that, in the event of any such failure, an aggrieved person will be irreparably damaged and will not have an adequate remedy of law. Any such person shall, therefore, be entitled to injunctive relief, including specific performance, to enforce such obligations, without the posting of any bond, and, if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law. 7.3 NOTICES. Any and all notices, demands or other communications required or permitted hereunder shall be in writing and shall be made by hand delivery (deemed given upon receipt), or by certified mail return receipt requested (deemed given upon execution of such return receipt), addressed to a Stockholder and/or the Company, as applicable, at the address set forth below each such person's or entity's signature. Any party may change its address for notice Page 36 by notice given to each Stockholder and the Company in accordance with the foregoing. No objection may be made to the method of delivery of any notice actually and timely received. 7.4 LEGEND. In addition to any other legend that may be required by applicable law, each share certificate representing Shares that are subject to this Agreement shall have endorsed, to the extent appropriate, upon its face the following words: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY JURISDICTION. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, ASSIGNED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (I) A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES THAT IS EFFECTIVE UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAW, OR (II) ANY EXEMPTION FROM REGISTRATION UNDER SUCH ACT, OR APPLICABLE STATE SECURITIES LAW, RELATING TO THE DISPOSITION OF SECURITIES, INCLUDING RULE 144, PROVIDED, AN OPINION OF COUNSEL IS FURNISHED TO THE CORPORATION, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE CORPORATION, TO THE EFFECT THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND/OR APPLICABLE STATE SECURITIES LAW IS AVAILABLE. IN ADDITION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER COMPLIES WITH THE PROVISIONS OF A STOCKHOLDERS AGREEMENT (THE "STOCKHOLDERS AGREEMENT"), A COPY OF WHICH IS ON FILE AND MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF THE CORPORATION. NO TRANSFER OF THE SECURITIES WILL BE MADE ON THE BOOKS OF THE CORPORATION UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH STOCKHOLDERS AGREEMENT. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO OTHER RIGHTS AND OBLIGATIONS, INCLUDING VOTING AGREEMENTS, AS SET FORTH IN THE STOCKHOLDERS AGREEMENT. To the extent the circumstances or provisions requiring any of the above legends have ceased to be effective, the Company will upon request reissue certificates without the applicable legend or legends. Page 37 7.5 TRANSFEREES BOUND. All Shares owned by a Transferee shall, subject to the terms of Section 2.3 of this Agreement, for all purposes be subject to the terms of this Agreement, whether or not such Transferee has executed a consent to be bound by this Agreement. The foregoing shall not apply in the case of any Shares acquired by a Transferee pursuant to a sale of Shares pursuant to an effective registration statement under the Securities Act or, except for sales to an affiliate of the Company or sales made prior to a Public Offering Event, pursuant to Rule 144. 7.6 AMENDMENT; WAIVER. This Agreement may be amended, modified, supplemented or terminated only by a written instrument signed by each of (i) the Company, (ii) any such Investor Parties that hold Common Shares or options to acquire Common Shares that represent, on a fully-diluted basis, a majority of the Common Shares held by all of the Investor Parties, (iii) any such Management Parties that hold Common Shares or options to acquire Common Shares that represent, on a fully-diluted basis, a majority of the Common Shares held by all of the Management Parties, and (iv) any such Mezzanine Parties that hold Common Shares or Warrants to acquire Common Shares that represent, on a fully-diluted basis, a majority of the Common Shares held by all of the Mezzanine Parties. No provision of this Agreement may be waived orally, but only by a written instrument signed by the party against whom enforcement of such waiver is sought. Stockholders shall be bound from and after the date of the receipt of a written notice from the Company setting forth such amendment or waiver by any consent authorized by this Section 7.6, whether or not the Shares shall have been marked to indicate such consent; no alteration, modification or impairment shall be implied by reason of any previous waiver, extension of time, delay or omission in exercise, or other indulgence. 7.7 ADDITIONAL DOCUMENTS. Each party hereto agrees to execute any and all further documents and writings within such party's powers and to perform such other actions that may be or become necessary or expedient to effectuate and carry out this Agreement. 7.8 NO THIRD-PARTY BENEFITS. None of the provisions of this Agreement shall be for the benefit of, or enforceable by, any third-party beneficiary. 7.9 SUCCESSORS AND ASSIGNS. Subject to the terms hereof, this Agreement shall be binding upon and shall inure to the benefit of the Stockholders, and their respective successors and permitted assigns; PROVIDED, HOWEVER, (i) neither this Agreement nor any rights or obligations hereunder may be transferred by the Company and (ii) no rights or obligations of any Stockholder under this Agreement may be assigned except that any Stockholder may transfer its rights and obligations hereunder, in whole or in part, in connection with a Transfer of Shares made in compliance with all of the provisions of this Agreement. Notwithstanding anything in this Agreement to the contrary, in the event of a Transfer of Shares by any VCA Co-Investment Fund to its member or members upon the dissolution of such VCA Co-Investment Fund, such member or members shall succeed to all rights and obligations under this Agreement of such VCA Co-Investment Fund, subject to the compliance by such member or members with the provisions of Section 2.3. Page 38 7.10 SEVERABILITY. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein; PROVIDED, HOWEVER, that the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such invalid, illegal or unenforceable term, provision, covenant or restriction. 7.11 INTEGRATION. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to its subject matter. 7.12 GOVERNING LAW. THE RIGHTS AND LIABILITIES OF THE PARTIES SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF DELAWARE, REGARDLESS OF THE CHOICE OF LAWS PROVISIONS OF SUCH STATE OR ANY OTHER JURISDICTION. 7.13 ATTORNEYS' FEES. Should any litigation or arbitration be commenced (including any proceedings in a bankruptcy court) between the parties hereto or their representatives concerning any provision of this Agreement or the rights and duties of any person or entity hereunder, the party or parties prevailing in such proceeding shall be entitled, in addition to such other relief as may be granted, to the reasonable attorneys' fees and court costs incurred by reason of such litigation or arbitration. 7.14 HEADINGS. The headings in this Agreement are inserted only as a matter of convenience, and in no way define, limit, or extend or interpret the scope of this Agreement or of any particular Section. 7.15 INFORMATION FOR NOTICES. No Stockholder (other than a Stockholder as of the date of this Agreement with respect to the Shares held as of such date) shall hold any of its Shares in nominee name unless it otherwise provides the Company and the other Stockholders with its name and address and other information reasonably requested by the Company in order to establish such Stockholder's particular status under this Agreement. 7.16 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 7.17 CONSENT TO JURISDICTION. Each Stockholder agrees that any proceeding arising out of or relating to this Agreement or the breach or threatened breach of this Agreement may be commenced and prosecuted in a court in the State of California. Each Stockholder hereby irrevocably and unconditionally consents and submits to the non-exclusive personal jurisdiction of any court in the State of California in respect of any such proceeding. Each Stockholder Page 39 consents to service of process upon such Stockholder with respect to any such proceeding by registered mail, return receipt requested, and by any other means permitted by applicable laws and rules. Each Stockholder waives any objection that such Stockholder may now or hereafter have to the laying of venue of any such proceeding in any court in the State of California and any claim that it may now or hereafter have that any such proceeding in any court in the State of California has been brought in an inconvenient forum. 7.18 NO INCONSISTENT AGREEMENTS. The Company will not hereafter enter into any agreements with respect to its securities that are inconsistent with or violate in any material respects the rights granted to the Holders of Registrable Shares in this Agreement. 7.19 CERTAIN DISTRIBUTIONS EXEMPT; REPRESENTATIVES. Notwithstanding anything to the contrary contained in this Agreement, any distribution of Shares by any of the Investors or any other Investor Party, or by any of the Mezzanine Purchasers or any other Mezzanine Party, to its respective equity participants in accordance with the terms of its limited partnership agreement, operating agreement, or other governing agreement or instrument shall be exempt from the terms and conditions of this Agreement, other than that the Persons receiving the Shares in connection with any such distribution shall be bound on a going-forward basis by the terms and conditions of this Agreement. For example, and not by way of limitation, any such distribution shall not trigger any of the "tag-along" rights set forth in Section 2.4. For purposes of this Agreement, the parties hereto shall designate and appoint representatives (each, a "REPRESENTATIVE") as provided in this Section 7.19. The Investor Parties hereby designate and appoint Leonard Green & Partners, L.P. (or any successor designated in writing by Investor Parties holding Shares that represent, on a fully-diluted basis, a majority in value of the Shares held by all of the Investor Parties) as representative on behalf of the Investor Parties; the Management Parties hereby designate and appoint Robert L. Antin (or any successor designated in writing by Management Parties holding Common Shares or options to acquire Common Shares that represent, on a fully-diluted basis, a majority in value of the Common Shares held by all of the Management Parties) as representative on behalf of the Management Parties; and the Mezzanine Parties hereby designate and appoint GS Mezzanine Advisors II, L.L.C. (or any successor designated in writing by Mezzanine Parties holding Shares or Warrants to acquire Shares that represent, on a fully-diluted basis, a majority in value of the Shares held by all of the Mezzanine Parties) as representative on behalf of the Mezzanine Parties. For purposes of determining whether a majority of the applicable Shares are held by the applicable parties under this Section 7.19, each Common Share shall be valued at $15.00 and each Preferred Share shall be valued at $25.00. Each Representative shall have the authority to receive any notices, settle any claims, agree to any amendments, and grant any consents or waivers on behalf of the parties that such Representative represents. The parties hereto shall be entitled to deal exclusively with the respective Representatives with respect to matters arising out of this Agreement, and the parties hereto shall be entitled to deliver any notices to the respective Representatives and rely on any action of the respective Representatives with respect to actions taken under this Agreement on behalf of the parties hereto. 7.20 APPROVAL OF MANAGEMENT SERVICES AGREEMENT BY STOCKHOLDERS. Each of the Stockholders, by such Stockholder's execution of this Agreement, hereby (i) approves the Page 40 payment by the Company to Leonard Green & Partners, L.P. ("LGP") of certain fees in connection with the consummation of the transactions contemplated by the Merger Agreement and certain fees in connection with the provision of ongoing services to the Company, and (ii) approves and adopts the Management Services Agreement to be entered into between the Company, Operating Company and LGP. 7.21 CERTAIN LIMITATIONS. Notwithstanding anything to the contrary contained in this Agreement, prior to the issuance or sale of any shares of the Company's capital stock pursuant to an effective registration statement under the Securities Act, the Company shall not be required to register any transfer of Shares on the Company's books if, in the reasonable, good faith judgment of the Company, registering such transfer would cause the Company to become subject to registration pursuant to the Exchange Act. 7.22 INFORMATION REGARDING BENEFICIAL OWNERSHIP. Each Stockholder agrees to promptly provide to the Company any reasonable information or representations that the Company may request regarding such Stockholder's beneficial ownership of shares of any class of the Company's capital stock. Page 41 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first set forth above. THE COMPANY: VETERINARY CENTERS OF AMERICA, INC. By: /S/ ROBERT L. ANTIN ------------------------------- Name: Robert L. Antin Title: Chief Executive Officer THE PURCHASER: GREEN EQUITY INVESTORS III, L.P. By: GEI Capital III, LLC, its general partner By: /S/ JOHN DANHAKL ------------------------------- Name: John Danhakl Title: Manager Page 42 THE VCA CO-INVESTMENT FUNDS: VCA CO-INVESTMENT FUND I, LLC By: Leonard Green & Partners, L.P., its manager By: LGP Management, Inc. By: /S/ JOHN DANHAKL ------------------------------- Name: John Danhakl Title: Manager VCA CO-INVESTMENT FUND II, LLC By: Leonard Green & Partners, L.P., its manager By: LGP Management, Inc. By: /S/ JOHN DANHAKL ------------------------------- Name: John Danhakl Title: Manager VCA CO-INVESTMENT FUND III, LLC By: Leonard Green & Partners, L.P., its manager By: LGP Management, Inc. By: /S/ JOHN DANHAKL ------------------------------- Name: John Danhakl Title: Manager Page 43 VCA CO-INVESTMENT FUND IV, LLC By: Leonard Green & Partners, L.P., its manager By: LGP Management, Inc. By: /S/ JOHN DANHAKL ------------------------------- Name: John Danhakl Title: Manager VCA CO-INVESTMENT FUND V, LLC By: Leonard Green & Partners, L.P., its manager By: LGP Management, Inc. By: /S/ JOHN DANHAKL ------------------------------- Name: John Danhakl Title: Manager VCA CO-INVESTMENT FUND VI, LLC By: Leonard Green & Partners, L.P., its manager By: LGP Management, Inc. By: /S/ JOHN DANHAKL ------------------------------- Name: John Danhakl Title: Manager Page 44 VCA CO-INVESTMENT FUND VII, LLC By: Leonard Green & Partners, L.P., its manager By: LGP Management, Inc. By: /S/ JOHN DANHAKL ------------------------------- Name: John Danhakl Title: Manager VCA CO-INVESTMENT FUND VIII, LLC By: Leonard Green & Partners, L.P., its manager By: LGP Management, Inc. By: /S/ JOHN DANHAKL ------------------------------- Name: John Danhakl Title: Manager Page 45 THE MEZZANINE PURCHASERS: GS MEZZANINE PARTNERS II, L.P. By: GS MEZZANINE ADVISORS II, L.L.C., its general partner By: /S/ KATHERINE L. NISSENBAUM ---------------------------------- Name: Katherine L. Nissenbaum Title: Vice President GS MEZZANINE PARTNERS II OFFSHORE, L.P. By: GS Mezzanine Advisors II, L.L.C. its general partner By: /S/ KATHERINE L. NISSENBAUM ---------------------------------- Name: Katherine L. Nissenbaum Title: Vice President TCW LEVERAGED INCOME TRUST, L.P. By: TCW Advisers (Bermuda), Ltd. as its General Partner By: /S/ MARK L. ATTANASIO ---------------------------------- Name: Mark L. Attanasio Title: Group Managing Director By: TCW Investment Management Company as Investment Adviser By: /S/ JOHN C. ROCCHIO ---------------------------------- Name: John C. Rocchio Title: Managing Director Page 46 TCW LEVERAGED INCOME TRUST II, L.P. By: TCW (LINC II), L.P. as its General Partner By: TCW Advisers (Bermuda), Ltd. as its General Partner By: /S/ MARK L. ATTANASIO ---------------------------------- Name: Mark L. Attanasio Title: Group Managing Director By: TCW Investment Management Company as Investment Adviser By: /S/ JOHN C. ROCCHIO ---------------------------------- Name: John C. Rocchio Title: Managing Director Page 47 TCW LEVERAGED INCOME TRUST IV, L.P. By: TCW Asset Management Company as its Investment Adviser By: /S/ MARK L. ATTANASIO ---------------------------------- Name: Mark L. Attanasio Title: Group Managing Director By: /S/ JOHN C. ROCCHIO ---------------------------------- Name: John C. Rocchio Title: Managing Director By: TCW (LINC IV), L.L.C. as General Partner By: TCW Asset Management Company as its Managing Member By: /S/ MARK L. ATTANASIO ---------------------------------- Name: Mark L. Attanasio Title: Group Managing Director By: /S/ JOHN C. ROCCHIO ---------------------------------- Name: John C. Rocchio Title: Managing Director TCW/CRESCENT MEZZANINE PARTNERS II, L.P. By: TCW/Crescent Mezzanine II, L.P. its general partner or managing owner By: TCW/Crescent Mezzanine, L.L.C. its general partner By: /S/ JOHN C. ROCCHIO ---------------------------------- Name: John C. Rocchio Title: Managing Director Page 48 TCW/CRESCENT MEZZANINE TRUST II By: TCW/Crescent Mezzanine II, L.P. its general partner or managing owner By: TCW/Crescent Mezzanine, L.L.C. its general partner By: /S/ JOHN C. ROCCHIO ---------------------------------- Name: John C. Rocchio Title: Managing Director THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY By: /S/ GARY A. POLINER ---------------------------------- Name: Gary A. Poliner Title: Its Authorized Representative Page 49 MANAGEMENT STOCKHOLDERS: /S/ ROBERT L. ANTIN ------------------------------------ Robert L. Antin /S/ ARTHUR ANTIN ------------------------------------ Arthur Antin /S/ NEIL TAUBER ------------------------------------ Neil Tauber /S/ TOM FULLER ------------------------------------ Tom Fuller /S/ CAROL JOHNSON ------------------------------------ Carol Johnson /S/ RICK WATSON ------------------------------------ Rick Watson /S/ STEPHEN HADLEY ------------------------------------ Stephen Hadley /S/ LARRY COHEN ------------------------------------ Larry Cohen /S/ JOSH DRAKE ------------------------------------ Josh Drake Page 50 /S/ JOHN CORSALE ------------------------------------ John Corsale /S/ LEANN PALM ------------------------------------ LeAnn Palm /S/ ADRIENNE BROCKWAY ------------------------------------ Adrienne Brockway /S/ SIMON MESSINA ------------------------------------ Simon Messina /S/ DOUG CARTER ------------------------------------ Doug Carter /S/ STACY SULPHIN ------------------------------------ Stacy Sulphin /S/ LORELEI MCINTIRE ------------------------------------ Lorelei McIntire /S/ LOUISE MACKAWAY ------------------------------------ Louise Mackaway /S/ DANA FUDALI ------------------------------------ Dana Fudali Page 51 /S/ MARK NUNEZ ------------------------------------ Mark Nunez /S/ PHIL PADRID ------------------------------------ Phil Padrid /S/ MIKE BARNETT ------------------------------------ Mike Barnett /S/ BOB MURTAUGH ------------------------------------ Bob Murtaugh /S/ MIKE NAPOLITANO ------------------------------------ Mike Napolitano /S/ STEVE ELLIOTT ------------------------------------ Steve Elliott /S/ JIM KLAASSEN ------------------------------------ Jim Klaassen /S/ SCOTT MOROFF ------------------------------------ Scott Moroff /S/ KEVIN BLOSS ------------------------------------ Kevin Bloss Page 52 /S/ MARK MICHAEL ------------------------------------ Mark Michael /S/ JEFF EDWARDS ------------------------------------ Jeff Edwards /S/ DAVID LEWIS ------------------------------------ David Lewis /S/ BOB LOBINGIER ------------------------------------ Bob Lobingier /S/ MARY KURIAN ------------------------------------ Mary Kurian /S/ KATHY OTTO ------------------------------------ Kathy Otto /S/ NANCY ZIMMERMAN ------------------------------------ Nancy Zimmerman /S/ DAVE PROFFER ------------------------------------ Dave Proffer /S/ BARRETT CARRERRE ------------------------------------ Barrett Carrerre Page 53 /S/ CRAIG BURGNER ------------------------------------ Craig Burgner /S/ BRIAN HAAS ------------------------------------ Brian Haas /S/ ARLENE CAMERON ------------------------------------ Arlene Cameron /S/ STEVE HIER-GOETZ ------------------------------------ Steve Hier-Goetz /S/ RON TATUM ------------------------------------ Ron Tatum /S/ MARY REILLY ------------------------------------ Mary Reilly /S/ TODD TAMS ------------------------------------ Todd Tams /S/ JANET CHISUM ------------------------------------ Janet Chisum /S/ SUSAN TAYLOR ------------------------------------ Susan Taylor Page 54 /S/ STEVE SCOTT ------------------------------------ Steve Scott /S/ CAROLINE EVERETT ------------------------------------ Caroline Everett /S/ RAY HEIDENHEIM ------------------------------------ Ray Heidenheim /S/ BARBARA MORRELL ------------------------------------ Barbara Morrell /S/ KAREN CORNWELL ------------------------------------ Karen Cornwell /S/ KATE ADAMS ------------------------------------ Kate Adams /S/ LORRIE NIMSGEM ------------------------------------ Lorrie Nimsgem /S/ PATRICK O'KEEFE ------------------------------------ Patrick O'Keefe /S/ CINDI KAZIMER ------------------------------------ Cindi Kazimer Page 55 /S/ ROCKY MCKELVEY ------------------------------------ Rocky McKelvey /S/ RIDDICK RICKS ------------------------------------ Riddick Ricks /S/ DARIN NELSON ------------------------------------ Darin Nelson /S/ JUDY MULLEN ------------------------------------ Judy Mullen /S/ OMAR ONDOY ------------------------------------ Omar Ondoy /S/ BRUCE BARGMANN ------------------------------------ Bruce Bargmann /S/ PAM EASTWOOD ------------------------------------ Pam Eastwood /S/ PAM MILLER ------------------------------------ Pam Miller /S/ LARRY CONN ------------------------------------ Larry Conn Page 56 /S/ KELLY MICHAEL ------------------------------------ Kelly Michael /S/ MAL CLINGAN ------------------------------------ Mal Clingan /S/ BOB VAN DYCK ------------------------------------ Bob Van Dyck /S/ LANA BRISTOW ------------------------------------ Lana Bristow /S/ JIM CHURCH ------------------------------------ Jim Church /S/ DAWN OLSEN ------------------------------------ Dawn Olsen /S/ BARRETT CARRERRE ------------------------------------ Barrett Carrerre /S/ NATALIE CARTER ------------------------------------ Natalie Carter /S/ NOUSHIN LAJEVARDI ------------------------------------ Noushin Lajevardi Page 57 /S/ DAVID ROSEN ------------------------------------ David Rosen /S/ VARTAN AKHAPARYAN ------------------------------------ Vartan Akhaparyan /S/ FRAN VELTRE ------------------------------------ Fran Veltre /S/ JOHN PAULSON ------------------------------------ John Paulson /S/ KAREN DEVANEY ------------------------------------ Karen Devaney /S/ VICTOR MARQUEZ ------------------------------------ Victor Marquez /S/ BRUCE ILGEN ------------------------------------ Bruce Ilgen /S/ TERRI GOON ------------------------------------ Terri Goon /S/ STEVE FISHER ------------------------------------ Steve Fisher Page 58 /S/ TORY KOPLIN ------------------------------------ Tory Koplin /S/ EDDIE MILES ------------------------------------ Eddie Miles /S/ TAMI GATES ------------------------------------ Tami Gates Page 59 SCHEDULE 1 PRO FORMA OWNERSHIP
I. OWNERSHIP OF COMMON STOCK % OF TOTAL --------------- STOCKHOLDER NUMBER OF SHARES PRIMARY FULLY-DILUTED - ----------- ---------------- --------- ------------- MANAGEMENT STOCKHOLDERS - ----------------------- Robert Antin 127,092 10.9% 9.5% Arthur Antin 26,667 2.3% 2.0% Neil Tauber 3,333 0.3% 0.2% Tom Fuller 13,334 1.1% 1.0% Todd Tams 2,333 0.2% 0.2% Carol Johnson 10,000 0.9% 0.8% Rick Watson 1,667 0.1% 0.1% Stephen Hadley 3,979 0.3% 0.3% Larry Cohen 1,967 0.2% 0.1% Josh Drake 3,334 0.3% 0.3% John Corsale 2,000 0.2% 0.2% Mike Napolitano 3,250 0.3% 0.2% Steve Elliott 3,188 0.3% 0.2% Jim Klaassen 406 * * Scott Moroff 2,927 0.3% 0.2% Kevin Bloss 1,667 0.1% 0.1% Mark Michael 1,031 * * Jeff Edwards 927 * * David Lewis 260 * * Dave Proffer 1,333 0.1% * Barrett Carrerre 594 * * Brian Haas 333 * * Bob Lobingier 333** 0.0% * Todd Tams 3,333** 0.0% 0.2% Page 60 Rick Watson 3,333** 0.0% 0.2% Stephen Hadley 1,354** 0.0% 0.1% Larry Cohen 33** 0.0% * Josh Drake 3,333** 0.0% 0.2% Janet Chisum 333** 0.0% * Susan Taylor 266** 0.0% * Steve Scott 266** 0.0% * Caroline Everett 266** 0.0% * Ray Heidenheim 266** 0.0% * Barbara Morrell 266** 0.0% * Karen Cornwell 200** 0.0% * Lorrie Nimsgern 133** 0.0% * Patrick O'Keefe 133** 0.0% * LeAnn Palm 333** 0.0% * Adrienne Brockway 133** 0.0% * Simon Messina 133** 0.0% * Doug Carter 133** 0.0% * Stacy Sutphin 133** 0.0% * Lorelei McIntire 133** 0.0% * Louise Mackawgy 133** 0.0% * Dana Fudali 200** 0.0% * Cindi Kazimer 66** 0.0% * Rocky McKelvey 333** 0.0% * Riddick Ricks 200** 0.0% * Mark Nunez 200** 0.0% * Phil Padrid 200** 0.0% * Mike Barnett 200** 0.0% * Bob Murtaugh 200** 0.0% * Page 61 Darin Nelson 6,000** 0.0% 0.5% Mike Napolitano 2,083** 0.0% 0.2% Steve Elliott 2,145** 0.0% 0.2% Jim Klaassen 2,927** 0.0% 0.2% Scott Moroff 406** 0.0% * Kevin Bloss 3,333** 0.0% 0.2% Mark Michael 2,302** 0.0% 0.2% Jeff Edwards 406** 0.0% * David Lewis 406** 0.0% * Judy Mullen 800** 0.0% * Omar Ondoy 800** 0.0% * Bruce Bargmann 933** 0.0% * Patsy Eastwood 133** 0.0% * Pam Miller 133** 0.0% * Larry Conn 267** 0.0% * Kelly Michael 666** 0.0% * Mal Clingan 133** 0.0% * Bob Van Dyck 1,000** 0.0% * Lana Bristow 267** 0.0% * Jim Church 800** 0.0% * Mary Kurian 200** 0.0% * Kathy Otto 133** 0.0% * Nancy Zimmerman 133** 0.0% * Dawn Olsen 1,333** 0.0% * Barrett Carrerre 406** 0.0% * Natalie Carter 1,000** 0.0% * Noushin Lajevardi 1,000** 0.0% * David Rosen 133** 0.0% * Page 62 Craig Burgner 133** 0.0% * Vartan Akhaparyan 133** 0.0% * Fran Veltre 133** 0.0% * John Paulson 66** 0.0% * Karen Devaney 133** 0.0% * Victor Marquez 133** 0.0% * Arlene Cameron 67** 0.0% * Steve Hier-Goetz 67** 0.0% * Bruce Ilgen 66** 0.0% * Terri Goon 67** 0.0% * Steve Fisher 1,000** 0.0% * Tory Koplin 200** 0.0% * Eddie Miles 200** 0.0% * Tami Gates 133** 0.0% * Ron Tatum 67** 0.0% * Mary Reily 67** 0.0% * Jacquie Rogers 133** 0.0% * INVESTORS - --------- Green Equity Investors III, L.P. 615,662 52.7% 46.2% VCA Co-Investment Fund I, LLC 123,441 10.6% 9.3% VCA Co-Investment Fund II, LLC 55,548 4.8% 4.2% VCA Co-Investment Fund III, LLC 55,548 4.8% 4.2% VCA Co-Investment Fund IV, LLC 30,860 2.6% 2.3% VCA Co-Investment Fund V, LLC 30,860 2.6% 2.3% VCA Co-Investment Fund VI, LLC 12,345 1.1% 0.9% VCA Co-Investment Fund VII, LLC 30,860 2.6% 2.3% VCA Co-Investment Fund VIII, LLC 1,543 0.1% 0.1%
Page 63
% OF TOTAL -------------- STOCKHOLDER NUMBER OF SHARES PRIMARY FULLY-DILUTED - ----------- ---------------- --------- ------------- MEZZANINE PURCHASERS GS Mezzanine Partners II, L.P. 41,614*** 0.0% 3.1% GS Mezzanine Partners II Offshore, L.P. 12,691*** 0.0% 1.0% TCW Leveraged Income Trust, L.P. 1,065*** 0.0% * TCW Leveraged Income Trust II, L.P. 1,065*** 0.0% * TCW Leveraged Income Trust IV, L.P. 1,065*** 0.0% * TCW/Crescent Mezzanine Partners II, L.P. 10,284*** 0.0% 0.8% TCW/Crescent Mezzanine Trust II 2,493*** 0.0% 0.2% The Northwestern Mutual Life 6,389*** 0.0% 0.5% Insurance Company TOTAL 1,333,333**** 100% 100% * Less than 0.1%. ** Represents Shares issuable upon exercise of stock options held by such Stockholder. *** Represents Shares issuable upon exercise of Warrants held by such Stockholder. **** Includes 33,333 Shares reserved for future issuance pursuant to the Company's 2000 Stock Incentive Plan and 5,391 Shares reserved for future issuance to newly hired employees of the Company or otherwise unallocated.
Page 64 II. OWNERSHIP OF JUNIOR PREFERRED STOCK
% OF TOTAL STOCKHOLDER NUMBER OF SHARES (PRIMARY) - ----------- ---------------- ----------- INVESTORS Green Equity Investors III, L.P. 1,801,935 60.7% VCA Co-Investment Fund I, LLC 361,289 12.2% VCA Co-Investment Fund II, LLC 162,581 5.5% VCA Co-Investment Fund III, LLC. 162,581 5.5% VCA Co-Investment Fund IV, LLC 90,323 3.0% VCA Co-Investment Fund V, LLC 90,323 3.0% VCA Co-Investment Fund VI, LLC 36,129 1.2% VCA Co-Investment Fund VII, LLC 90,323 3.0% VCA Co-Investment Fund VIII, LLC 4,516 0.2% MEZZANINE PURCHASERS GS Mezzanine Partners II, L.P. 92,722 3.1% GS Mezzanine Partners II Offshore, L.P. 28,278 1.0% TCW Leveraged Income Trust, L.P. 2,373 * TCW Leveraged Income Trust II, L.P. 2,373 * TCW Leveraged Income Trust IV, L.P. 2,373 * TCW/Crescent Mezzanine Partners II, L.P. 22,914 0.8% TCW/Crescent Mezzanine Trust II 5,555 0.2% The Northwestern Mutual Life 14,234 0.5% Insurance Company TOTAL 2,970,822 100.0% * Less than 0.1%.
Page 65 III. OWNERSHIP OF SENIOR PREFERRED STOCK
% OF TOTAL STOCKHOLDER NUMBER OF SHARES (PRIMARY) - ----------- ---------------- ----------- INVESTORS Green Equity Investors III, L.P. 1,818,668 60.7% VCA Co-Investment Fund I, LLC 364,646 12.2% VCA Co-Investment Fund II, LLC 164,090 5.5% VCA Co-Investment Fund III, LLC 164,090 5.5% VCA Co-Investment Fund IV, LLC 91,161 3.0% VCA Co-Investment Fund V, LLC 91,161 3.0% VCA Co-Investment Fund VI, LLC 36,465 1.2% VCA Co-Investment Fund VII, LLC 91,161 3.0% VCA Co-Investment Fund VIII, LLC 4,558 0.2% MEZZANINE PURCHASERS GS Mezzanine Partners II, L.P. 93,583 3.1% GS Mezzanine Partners II Offshore, L.P. 28,540 1.0% TCW Leveraged Income Trust, L.P. 2,395 * TCW Leveraged Income Trust II, L.P. 2,395 * TCW Leveraged Income Trust IV, L.P. 2,395 * TCW/Crescent Mezzanine Partners II, L.P. 23,127 0.8% TCW/Crescent Mezzanine Trust II 5,606 0.2% The Northwestern Mutual Life 14,367 0.5% Insurance Company TOTAL 2,998,408 100.0% * Less than 0.1%.
Page 66 EX-4 6 ex-4_3.txt EXHIBIT 4.3 - INDENTURE AGREEMENT EXHIBIT 4.3 INDENTURE (this "INDENTURE") dated as of September 20, 2000, by and between VETERINARY CENTERS OF AMERICA, INC., a Delaware corporation ("HOLDINGS"), and Chase Manhattan Bank and Trust Company, National Association, a national banking association organized under the federal laws of the United States, as trustee (the "TRUSTEE"). Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of (a) Holdings Senior Notes due 2010 issued on the date hereof (such notes, the "INITIAL NOTES"), (b) if and when issued as provided in the Exchange and Registration Rights Agreement (as defined in APPENDIX A hereto (the "Appendix")) or in this Indenture, Holdings' Senior Notes due 2010 issued in the Registered Exchange Offer in exchange for any Initial Notes or otherwise as provided in this Indenture (the "EXCHANGE NOTES") and (c) if and when issued in payment of interest otherwise payable in cash, additional Holdings Senior Notes due 2010 (the "PIK NOTES") on any Initial Notes, Exchange Notes or PIK Notes previously issued (the PIK Notes, together with the Initial Notes and any Exchange Notes issued hereunder, the "NOTES," such term to include any such notes issued in exchange or replacement therefor). Except as otherwise provided herein, the Notes shall be limited to $100,000,000, plus the amount of any PIK Notes, in aggregate principal amount outstanding at any time. ARTICLE 1. DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. DEFINITIONS. As used herein, the following terms shall have the meanings specified herein unless the context otherwise requires: "ACCREDITED INVESTOR" means any Person that is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act. "ACQUIRED INDEBTEDNESS" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness Incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person at the time such asset is acquired by such specified Person. "ADJUSTED EBITDA" means for the applicable period of measurement of Holdings and its Subsidiaries, (i) Consolidated EBITDA for such period MINUS (ii) Capital Expenditures of Holdings and its Subsidiaries for such period, on a consolidated basis, exclusive of Capital Expenditures constituting Permitted Acquisitions or funded with Net Proceeds from Asset Dispositions which are reinvested in accordance with SECTION 5.05. "AFFILIATE" means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Page 1 specified Person. For purposes of this definition, "CONTROL" (including, with correlative meanings, the terms "CONTROLLING," "CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as used with respect to any specified Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; PROVIDED, HOWEVER, that in the case of Holdings, the Company or any of their respective Subsidiaries beneficial ownership of 10% or more of the Equity Interests in Holdings, the Company or such Subsidiary, as the case may be, shall be deemed to be control. Notwithstanding the foregoing, in no event will the Purchasers or any Holder or any lender under the Credit Agreement or any holder of Company Notes or any of their respective Affiliates be deemed to be an Affiliate of Holdings or the Company solely by virtue of purchasing or holding any Notes or being such a lender or holding any Company Notes. "AFFILIATE TRANSACTION" is defined in SECTION 5.06. "APPENDIX" is defined in the recitals. "APPLICABLE LAW" means all laws, statutes, treaties, rules, codes (including building codes), ordinances, regulations, certificates, orders and licenses of, and legally binding interpretations by, any Governmental Authority and judgments, decrees, injunctions, writs, permits, orders or like governmental action of any Governmental Authority (including environmental laws and those pertaining to health or safety) applicable to the Holdings or any of its Subsidiaries or any of their properties, assets or operations. "ASSET DISPOSITION" means the disposition whether by sale, issuance, lease (as lessor (other than under operating leases)), transfer, loss, damage, destruction, condemnation or other transaction (including any merger or consolidation) or series of related transactions of any of the following: (a) any of the Capital Stock of any of Holdings' Subsidiaries or (b) any or all of the assets of Holdings or any of its Subsidiaries, in each case other than sales of inventory in the Ordinary Course of Business. Notwithstanding the foregoing, Asset Dispositions shall not be deemed to include (i) a transfer of assets by Holdings to the Company or by the Company to a Restricted Subsidiary of the Company that (other than Permitted Partially Owned Subsidiaries) is a Company Guarantor, or by a Restricted Subsidiary of the Company that (except for Permitted Partially Owned Subsidiaries) is a Company Guarantor to the Company or to another Restricted Subsidiary of the Company that (except for Permitted Partially Owned Subsidiaries) is a Company Guarantor, (ii) an issuance of Equity Interests by the Company to Holdings or by a Subsidiary of the Company to the Company or to a Restricted Subsidiary of the Company that (except for Permitted Partially Owned Subsidiaries) is a Company Guarantor, or by a Restricted Subsidiary of the Company to another Person to the extent permitted by SECTION 5.08(B), (iii) a Restricted Payment that is permitted by the provisions of SECTION 5.02, (iv) a Permitted Investment, (v) any conversion of Cash Equivalents into cash or any other form of Cash Equivalents, (vi) any foreclosure on assets, (vii) sales or disposition of past due accounts receivable in the Ordinary Course of Business, (viii) transactions permitted under ARTICLE 6 hereof, (ix) grants of credits and allowances in the Ordinary Course of Business, (x) the sublease of real or personal property on commercially reasonable terms, (xi) trade-ins or exchanges of Page 2 equipment or other fixed assets, (xii) the sale and leaseback of any assets within 180 days of the acquisition thereof, (xiii) sales of damaged, worn-out or obsolete equipment or assets that, in Holdings' reasonable judgment, are no longer either used or useful in the business of Holdings or its Subsidiaries, or (xiv) sales of other assets for aggregate consideration of less than $1 million with respect to any transaction or series of related transactions, provided the total consideration received for all assets sales under this clause (xiv) does not exceed for any fiscal year 5% of Consolidated Tangible Assets at the beginning of such fiscal year. "ASSET SALE OFFER" is defined in SECTION 4.10(A). "ATTRIBUTABLE DEBT" in respect of a Sale and Leaseback Transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such Sale and Leaseback Transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "BANKRUPTCY LAW" means Title 11 of the United States Code or any similar federal or state bankruptcy, insolvency, reorganization or other law for the relief of debtors. "BOARD" AND "BOARD OF DIRECTORS" means, as to any Person, the board of directors, the board of advisors (or similar governing body) of such Person. "BUSINESS DAY" means any day other than a Legal Holiday. "CAPITAL EXPENDITURES" means, for any period and with respect to any Person, the aggregate of all expenditures by such Person and its Subsidiaries for the acquisition or leasing of fixed or capital assets or additions to fixed or capital assets (including replacements, capitalized repairs and improvements during such period) which should be capitalized under GAAP on a consolidated balance sheet of such Person and its Subsidiaries. "CAPITALIZED LEASE OBLIGATION" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "CAPITAL STOCK" of any Person means any and all shares, interests, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "CASH EQUIVALENTS" means (i) marketable direct obligations issued or unconditionally guaranteed by the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one (1) year from the date of acquisition thereof; (ii) commercial paper maturing no more than one (1) year from the date of acquisition and, at the time of acquisition, having a rating of at least A-1 from Standard & Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; (iii) Page 3 certificates of deposit or bankers' acceptances maturing within one (1) year from the date of acquisition thereof issued by, or overnight reverse repurchase agreements from, any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia having combined capital and surplus of not less than $250,000,000; (iv) time deposits maturing no more than thirty (30) days from the date of creation thereof with commercial banks having membership in the Federal Deposit Insurance Corporation and having combined capital and surplus of not less than $250,000,000; (v) deposits or investments in mutual or similar funds offered or sponsored by brokerage or other companies having membership in the Securities Investor Protection Corporation and having combined capital and surplus of not less than $250,000,000; and (vi) other money market accounts or mutual funds which invest primarily in the securities described above. "CHANGE OF CONTROL" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or more related transactions, of all or substantially all of the properties and assets of Holdings and its Subsidiaries taken as a whole, or of the Company and its Subsidiaries taken as a whole, to any Person or "person" (as such term is used in Section 13(d)(3) of the Exchange Act), other than the Principals, Management Investors or their Related Parties; (ii) the adoption of a plan relating to the liquidation or dissolution of Holdings or the Company; (iii) the consummation of any transaction (including, without limitation, any merger or consolidation), as a result of which, (x) prior to a Note Registration, (1) the Principals, Management Investors and their Related Parties beneficially own and control, directly or indirectly, less than 51% of the aggregate voting interest attributable to all outstanding Capital Stock of Holdings, or (2) GEI and its Affiliates beneficially own, directly or indirectly, less than 25% of the aggregate voting interest attributable to all outstanding Capital Stock of Holdings, or (y) Holdings ceases to own directly 100% of the outstanding Equity Interests of the Company or (z) any Person or "group" (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act), other than the Principals, Management Investors or their Related Parties, shall have acquired, directly or indirectly, beneficial ownership of 35% or more on a fully diluted basis of the aggregate voting interest attributable to all outstanding Capital Stock of Holdings or (iv) the first day on which a majority of the members of the Board of Directors of Holdings are not Continuing Directors. "CHANGE OF CONTROL OFFER" is defined in SECTION 4.09(A). "CHANGE OF CONTROL PAYMENT" is defined in SECTION 4.09(A). "CHANGE OF CONTROL PAYMENT DATE" is defined in SECTION 4.09 (B)(II). "CLOSING" is defined in the Purchase Agreement. "CLOSING DATE" means September 20, 2000. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. Page 4 "COMMISSION" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Exchange Act, the body performing such duties at such time. "COMMON STOCK" of any Person means any and all shares, units, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock whether outstanding on the Closing Date or issued after the Closing Date, and includes, without limitation, all series and classes of such common stock. "COMPANY" means Vicar Operating, Inc., a Delaware corporation. "COMPANY GUARANTOR" means any Subsidiary of the Company which is a guarantor of the Company Notes under the Company Indenture. "COMPANY INDENTURE" means that certain Indenture, dated as of the date hereof, among the Company, the Company Guarantors listed on the signature pages thereof and Chase Manhattan Bank and Trust Company, National Association, trustee thereunder. "COMPANY NOTES" means those certain 13.5% Senior Subordinated Notes due 2010 of the Company issued on the Closing Date in an original aggregate principal amount of $20,000,000, and any such notes issued in exchange or replacement therefor, including any such notes issued in exchange for the Company Notes pursuant to the exchange and registration rights agreement with respect thereto. "CONSOLIDATED" or "CONSOLIDATED" (including the correlative term "consolidating") or on a "CONSOLIDATED BASIS," when used with reference to any financial term in this Indenture (but not when used with respect to any Tax Return or tax liability), means the aggregate for two or more Persons of the amounts signified by such term for all such Persons, with inter-company items eliminated in accordance with GAAP. "CONSOLIDATED EBITDA" means for the applicable period of measurement, the Consolidated Net Income of Holdings and its Subsidiaries on a consolidated basis, PLUS, without duplication, the following to the extent deducted in calculating such Consolidated Net Income: (i) Consolidated Interest Expense for such period, PLUS (ii) provisions for taxes based on income, PLUS (iii) total depreciation expense, PLUS (iv) total amortization expense, plus (v) other non-cash items reducing Consolidated Net Income (excluding any such non-cash item to the extent that it represents an accrual or reserve for potential cash items in any future period or amortization of a prepaid cash item but, notwithstanding anything to the contrary herein, including, without limitation, reserves for lease expenses and charges and expenses related to the closure of hospitals to the extent not paid in cash), all fees and expenses incurred in connection with the Merger and the financing thereof, including all non-compete payments, employment contract termination payments, deferred payments for restricted Capital Stock of Holdings and stay bonuses made in connection with the Merger and identified on Schedule 1(q) to the Purchase Agreement; PLUS (vi) non-recurring costs incurred by Holdings and its Subsidiaries in 1999 relating to year 2000 computer matters, LESS other non-cash items increasing Consolidated Net Page 5 Income (excluding any such non-cash item to the extent it represents the reversal of an accrual or reserve for potential cash item in any prior period). "CONSOLIDATED INTEREST COVERAGE RATIO" means, as of any date of determination, the ratio of (a) Adjusted EBITDA for the applicable period ending on such date to (b) Consolidated Interest Expense for such applicable period. "CONSOLIDATED INTEREST EXPENSE" means for the applicable period of measurement of Holdings and its Subsidiaries on a consolidated basis, the aggregate interest expense (whether or not payable in cash) for such period (including all commissions, discounts, fees and other charges in connection with standby letters of credit and similar instruments) for Holdings and its Subsidiaries on a consolidated basis, but excluding all amortization of financing fees and other charges incurred by Holdings and its Subsidiaries in connection with the issuance of the Notes, the issuance of the Company Notes and the borrowings under the Credit Agreement, MINUS interest income of Holdings and its Subsidiaries for such period, on a consolidated basis. "CONSOLIDATED NET INCOME" means for any period the net income (or loss) before provision for dividends on Holdings Preferred Stock of Holdings and its Subsidiaries on a consolidated basis for such period determined in conformity with GAAP, but excluding the following clauses (a) through (g) to the extent included in the computations thereof: (a) that percentage of net income (or loss) of each Subsidiary of the Company attributable to minority interests in such Subsidiary; (b) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Holdings or is merged into or consolidated with Holdings or any of its Subsidiaries or that Person's assets are acquired by Holdings or any of its Subsidiaries; (c) the income (or loss) of any Person (other than a Subsidiary) in which such Person has an interest except to the extent of the amount of dividends or other distributions actually paid to the Company; (d) the income of any Subsidiary of Holdings to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary; provided, however, that the income of the Company and its Subsidiaries shall not be excluded by reason of restrictions contained in the Credit Agreement or the Company Indenture or any similar agreements made in connection with any Refinancing thereof; (e) any after tax gains or losses attributable to Asset Dispositions or returned surplus assets of any pension plan; (f) all fees and expenses incurred in connection with the Merger and the financing thereof, including all non-compete payments, employment contract termination payments, deferred payments for restricted Capital Stock of Holdings and stay bonuses made in connection with the Merger identified on Schedule 1(q) to the Purchase Agreement and all premiums paid to retire debt in connection with the Merger, and (g) (to the extent not included in clauses (a) through (f) above) (i) any net extraordinary gains or net extraordinary losses or (ii) any net non-recurring gains or non-recurring losses to the extent attributable to Asset Dispositions, the exercise of options to acquire Capital Stock and the extinguishment of Indebtedness. "CONSOLIDATED NET WORTH" means, with respect to any Person as of any date, the sum of (i) the equity of the common equity holders of such Person and its Subsidiaries on a Page 6 consolidated basis as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Capital Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock (provided, however, that notwithstanding the foregoing, the respective amounts on Holdings' balance sheet on such date with respect to Senior Preferred Stock and Junior Preferred Stock (as defined in the Purchase Agreement ) shall include the aggregate liquidation value of such Preferred Stock as of the Closing Date), less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date of this Indenture in the book value of any asset owned by such Person or a Subsidiary of such Person and (y) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "CONSOLIDATED TANGIBLE ASSETS" as of any date of determination means the total amount of assets (less accumulated depreciation and amortization, allowances for doubtful receivables, other applicable reserves and other properly deductible items) which would appear on a consolidated balance sheet of Holdings and its Subsidiaries, determined on a Consolidated basis in accordance with GAAP, after deducting therefrom to the extent otherwise included, the amounts of: (a) minority interests in Subsidiaries held by Persons other than Holdings or a Subsidiary; (b) excess of cost over fair value of assets of businesses acquired, as determined in good faith by the Board of Directors of Holdings; (c) any revaluation or other write-up in book value of assets subsequent to the Closing Date as a result of a change in the method of valuation in accordance with GAAP consistently applied; (d) unamortized debt discount and expenses and other unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, licenses, organization or developmental expenses and other intangible items; (e) treasury stock; and (f) cash set apart and held in a sinking or other analogous fund established for the purpose of redemption or other retirement of Capital Stock. "CONTINUING DIRECTORS" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors immediately after consummation of the Merger or (ii) was nominated for election or elected to such Board of Directors with the approval, recommendation or endorsement of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "COVERAGE RATIO TEST" is defined in SECTION 5.04(A). "CREDIT AGREEMENT" means the Credit and Guaranty Agreement, dated as of the Closing Date, by and among the Company, Holdings and certain Subsidiaries of the Company, as guarantors, the lenders party thereto from time to time, Goldman Sachs Credit Partners L.P., as Sole Lead Arranger and as Sole Syndication Agent, and Wells Fargo Bank, N.A., as Administrative Agent and as Collateral Agent, consisting of the following facilities: (i) $250 million aggregate principal amount of term loans and (ii) a $50 million revolving credit facility, Page 7 together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreement or agreements may be amended (including any amendment and restatement thereof), supplemented, replaced, restructured, Refinanced or otherwise modified from time to time, including any amendment, supplement, modification or agreement adding Subsidiaries of the Company as additional borrowers or guarantors thereunder or extending the maturity of, Refinancing, replacing or otherwise restructuring all or any portion of the Indebtedness under such agreement or any successor or replacement agreement, and whether by the same or any other agent, lender or group of lenders or one or more agreements; provided that in no event may such agreement be amended (including any amendment and restatement thereof), supplemented, replaced, restructured, Refinanced or otherwise modified to increase the amount of available borrowings (except (x) for increases not in excess of the actual amount of accrued interest thereon plus prepayment premiums and fees and expenses associated with a Refinancing, replacement or other restructuring thereunder, (y) as permitted to be Incurred under SECTIONS 5.04(A), 5.04(B)(III), 5.04(B)(VII) and 5.04(B)(XIV), and (z) for other increases not to exceed $25 million in principal amount). "CREDIT DOCUMENTS" means the Credit Agreement, any Currency Agreement or Interest Swap Obligations with respect to Indebtedness outstanding under the Credit Agreement, and all certificates, instruments, financial and other statements and other documents and agreements made or delivered from time to time in connection therewith and related thereto. "CURRENCY AGREEMENT" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect Holdings or any Subsidiary of Holdings against fluctuations in currency values. "CUSTODIAN" is defined in SECTION 7.01. "DEFINITIVE NOTE" is defined in the APPENDIX. "DEFAULT" means any event, act or condition that is, or with the giving of notice, lapse of time or both would constitute, an Event of Default. "DEPOSITARY" is defined in the APPENDIX. "DESIGNATED SENIOR INDEBTEDNESS" means any Indebtedness so designated pursuant to the Company Indenture. "DISQUALIFIED CAPITAL STOCK" means any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event, matures (excluding any maturity as the result of an optional redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the sole option of the holder thereof (except, in each case, upon the occurrence of a Change of Control), on or prior to the date that is 91 days after the Stated Maturity of the Notes. Page 8 "EARN-OUT OBLIGATIONS" means any unsecured contingent liability of Holdings owed to any seller in connection with a Permitted Acquisition that (a) constitutes a portion of the purchase price for such Permitted Acquisition but is not an amount certain on the date of incurrence thereof and is not subject to any right of acceleration by such seller and (b) is only payable upon the achievement of performance standards by the Person or other property acquired in such Permitted Acquisition and in an amount based upon such achievement provided that the maximum aggregate amount of such liability shall be fixed at a specified amount on the date of such Permitted Acquisition; provided, however, that the term Earn-Out Obligations shall also include those obligations set forth in Schedule 1(ss) to the Purchase Agreement. "EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "EQUITY OFFERING" means any underwritten public offering of Qualified Capital Stock of Holdings, whether on a primary or secondary basis, pursuant to an effective registration statement filed under the Securities Act. "EVENT OF DEFAULT" is defined in SECTION 7.01. "EXCESS PROCEEDS" is defined in SECTION 5.05(B). "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCHANGE AND REGISTRATION RIGHTS AGREEMENT" is defined in the APPENDIX. "EXCHANGE NOTES" is defined in the recitals. "EXEMPT SUBSIDIARIES" shall mean those Permitted Partially Owned Subsidiaries of the Company listed on Schedule 1(f) of the Company Purchase Agreement that are not Company Guarantors. "EXISTING INDEBTEDNESS" is defined in the Purchase Agreement. "FAIR MARKET VALUE" means, with respect to any asset or property, the price which could be negotiated in an arm's-length transaction between a willing seller and a willing and able buyer. "FISCAL QUARTER" means a fiscal quarter of any Fiscal Year. "FISCAL YEAR" means the fiscal year of Holdings and its Subsidiaries ending on December 31 of each calendar year. "GAAP" means United States generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Page 9 Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession. "GEI" means Green Equity Investors III, L.P., a Delaware limited partnership. "GLOBAL NOTES LEGEND" is defined in the APPENDIX. "GOVERNMENTAL AUTHORITY" means (a) the government of the United States of America or any State or other political subdivision thereof, (b) any government or political subdivision of any other jurisdiction in which Holdings or any of its Subsidiaries conducts all or any part of its business, or which properly asserts jurisdiction over any properties of Holdings or any of its Subsidiaries or (c) any entity properly exercising executive, legislative, judicial, regulatory or administrative functions of any such government. "GUARANTEE" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "GUARANTOR" means a Subsidiary of the Company that executes and delivers a Guarantee of the Company's obligations under the Credit Documents and a subordinated Guarantee of the Company's obligations with respect to the Company Notes. "GUARANTOR SENIOR INDEBTEDNESS" is defined in the Company Indenture. "HOLDER" means a Person in whose name a Note is registered on the Registrar. "HOLDINGS" is defined in the preamble. "INCUR" is defined in SECTION 5.04(A). "INDEBTEDNESS" means, with respect to any Person, without duplication: (i) all Obligations of such Person for borrowed money (including, without limitation, Senior Indebtedness); (ii) all Obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (iii) all Capitalized Lease Obligations of such Person; (iv) all Obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all Obligations under any title retention agreement, in each case to the extent the purchase price is due more than six (6) months from the date the obligation is Incurred (but excluding trade accounts payable and other accrued liabilities arising in the ordinary course of business); (v) all Obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction; (vi) Guarantees and other contingent obligations in respect of Indebtedness referred to in clauses (i) through (v) above and clause (viii) below; (vii) all Obligations of any other Person of the type referred to in clauses (i) through (v) which are secured by any Lien on any property or asset of such Person, the amount of such Obligation being deemed to be the lesser of the fair market value of such property or asset or the Page 10 amount of the Obligation so secured; and (viii) all Obligations under Currency Agreements and all Interest Swap Obligations of such Person. "INDENTURE" is defined in the preamble. "INITIAL NOTES" is defined in the recitals. "INSTITUTIONAL ACCREDITED INVESTOR" is defined in the APPENDIX. "INTEREST PAYMENT DATE" is defined in EXHIBIT A. "INTEREST SWAP OBLIGATIONS" means the Obligations of any Person pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. "INVESTMENT" means (i) any direct or indirect purchase or other acquisition by Holdings or any of its Subsidiaries of any beneficial interest in, including stock, partnership interest or other Equity Interests of, or ownership interest in, any other Person (other than Holdings or any other Person who was a Restricted Subsidiary of Holdings at the time of such Investment); and (ii) any direct or indirect loan, advance or capital contribution by Holdings or any of its Subsidiaries to any other Person, including all indebtedness and accounts receivable from that other Person that did not arise from sales to or services provided to that other Person in the Ordinary Course of Business. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment but less all cash distributions constituting a return of capital. "LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking institutions in New York or California or at a place of payment are authorized by law, regulation or executive order to remain closed. If any payment date in respect of the Notes is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "LIEN" means any lien, mortgage, pledge, security interest, charge, encumbrance or governmental levy or assessment of any kind, whether voluntary or involuntary (including any conditional sale or other title retention agreement and any lease in the nature thereof). "MANAGEMENT INVESTORS" means Continuing Stockholders (as defined in the Merger Agreement) and initial holders of Common Stock of Holdings reserved for future issuance to employees of Holdings and its Subsidiaries as set forth on Schedule 1(d) of the Purchase Agreement. Page 11 "MANAGEMENT SERVICES AGREEMENT" means that certain Management Services Agreement, dated as of the Closing Date, by and between Holdings and the Company, on the one hand, and Leonard Green & Partners, L.P., on the other. "MATERIAL ADVERSE EFFECT" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of Holdings and its Subsidiaries taken as a whole or (b) the material impairment of the ability of the Company or any Guarantor that constitutes a Material Subsidiary to perform in any material respect its material obligations under any Transaction Document to which it is a party or of any Holder to enforce any Transaction Document in any material respect or collect any of the Obligations thereunder. "MATERIAL SUBSIDIARY" means one or more Subsidiaries of the Company which individually or in the aggregate shall have accounted for more than five percent (5%) of Consolidated EBITDA for the four-Fiscal Quarter period most recently ended. "MATURITY", when used with respect to any Note, means the date on which the principal of such Note becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise (including in connection with any offer to purchase that this Indenture requires Holdings to make). "MERGER" means the merger of Merger Corp. with and into Holdings as contemplated by the Merger Agreement. "MERGER AGREEMENT" means that certain Amended and Restated Agreement and Plan of Merger, dated as of August 11, 2000, by and among Holdings, the Company and Merger Corp. "MERGER CORP." means Vicar Recap, Inc., a Delaware corporation formed by GEI. "NET PROCEEDS" means cash proceeds actually received by Holdings or any of its Subsidiaries from any Asset Disposition (including insurance proceeds, awards of condemnation, and payments under notes or other debt securities received in connection with any Asset Disposition), net of (a) the costs of such sale, issuance, lease, transfer or other disposition (including Taxes attributable to such sale, lease or transfer), (b) amounts applied to repayment of Indebtedness (other than revolving credit Indebtedness under the Credit Agreement, without a corresponding reduction in the revolving credit commitment) secured by a Lien on the asset or property disposed of, (c) if such Asset Disposition involves the sale of a discrete business or product line, any accrued liabilities of such business or product line required to be paid or retained by Holdings or any of its Subsidiaries as part of such disposition and (d) appropriate amounts to be provided by Holdings or a Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with an Asset Disposition and retained by Holdings or such Subsidiary, as the case may be, after such Asset Disposition, including, without limitation, pension and benefit liabilities, liabilities related to environmental matters or liabilities under any indemnification obligations associated with such Asset Disposition. Page 12 "NOTE REGISTRATION" shall mean the first to occur of (i) the consummation of a Registered Exchange Offer and (ii) the effectiveness of a Shelf Registration Statement filed with the Commission. "NOTES" is defined in the recitals. "NOTES CUSTODIAN" is defined in the APPENDIX. "NOTICE OF DEFAULT" is defined in SECTION 8.05. "OBLIGATIONS" means all obligations for principal, premium, interest, penalties, fees, indemnification, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "OFFER AMOUNT" is defined in SECTION 4.10(A). "OFFER PERIOD" is defined in SECTION 4.10(A). "OFFICERS' CERTIFICATE" of Holdings means a certificate signed on behalf of Holdings by the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, any Vice President, the Chief Financial Officer, the Chief Accounting Officer, Treasurer, the Assistant Treasurer, Controller, the Secretary or an Assistant Secretary (or any such other officer that performs similar duties) of Holdings. One of the officers signing an Officers' Certificate given pursuant to SECTION 4.06 shall be the principal executive, financial or accounting officer or treasurer of Holdings. "OPINION OF COUNSEL" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to Holdings or the Trustee. "ORDINARY COURSE OF BUSINESS" means, in respect of any transaction involving Holdings or any Subsidiary of Holdings, the ordinary course of such Person's business, as conducted by any such Person in accordance with past practice and undertaken by such Person in good faith and not for purposes of evading any covenant or restriction in this Indenture, the Purchase Agreement, the Notes and the related documents. "PAYING AGENT" is defined in SECTION 2.03. "PERMITS" means all licenses, permits, certificates of need, approvals and authorizations from all Governmental Authorities required to lawfully conduct a business. "PERMITTED ACQUISITION" means the purchase by the Company or a Subsidiary of the Company of all or substantially all of the assets of a Person whose primary business is the same, related, ancillary or complementary to the business in which the Company and its Subsidiaries were engaged on the date of this Indenture, or any Investment by the Company or any Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person and each Subsidiary of such Person becomes a Restricted Subsidiary of the Company and, (a) if a Page 13 wholly-owned Domestic Subsidiary, a Company Guarantor or (b) if a less than wholly-owned Domestic Subsidiary, a Permitted Partially Owned Subsidiary, in each case whose primary business is the same, related, ancillary or complementary to the business in which the Company and its Subsidiaries were engaged on the date of this Indenture or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, a Restricted Subsidiary of the Company and whose primary business is the same, related, ancillary or complementary to the business in which the Company and its Subsidiaries were engaged in on the date of this Indenture; PROVIDED that at the time of such Investment or purchase, no Default or Event of Default exists or would be caused upon the consummation thereof. "PERMITTED INVESTMENTS" means: (i) any Investment in (including, without limitation, loans and advances to) the Company or a Restricted Subsidiary of the Company that (other than Permitted Partially Owned Subsidiaries) is a Company Guarantor and whose primary business is the same, related, ancillary or complementary to the business in which the Company and its Subsidiaries were engaged in on the date of such Investment; (ii) any Investment in Cash Equivalents, the Notes or the Company Notes; (iii) any Investment related to or arising out of a Permitted Acquisition; (iv) any Investment made in the Ordinary Course of Business which results from the receipt of non-cash consideration from an asset sale made pursuant to and in compliance with the provisions of SECTION 5.05 or from any sale or other disposition of assets not constituting an Asset Disposition hereunder; (v) loans and advances to employees for emergency, moving, entertainment, travel and other business expenses in the Ordinary Course of Business not to exceed $1,500,000 in the aggregate at any time outstanding; (vi) loans and advances not to exceed $1,500,000 at any time outstanding to employees of Holdings or its Subsidiaries for the purpose of funding the purchase of Capital Stock of Holdings by such employees; (vii) any Investments received as part of the settlement of litigation or in satisfaction of extensions of credit to any Person otherwise permitted under this Indenture pursuant to the reorganization, bankruptcy or liquidation of such Person or a good faith settlement of debts by said Person; (viii) any Investment existing on the date of this Indenture and listed on Schedule 1(tt) to the Purchase Agreement; Page 14 (ix) Investments of a Person or any of its Subsidiaries existing at the time such Person becomes a Subsidiary of the Company or at the time such Person merges or consolidates with the Company or any of its Subsidiaries, in either case in compliance with this Indenture; provided such Investments were not made by such Person in connection with or in anticipation or contemplation of such Person becoming a Subsidiary of the Company or such merger or consolidation; (x) Investments made in connection with purchase price adjustments, contingent purchase price payments or other Earn-Out Obligations paid in connection with Investments otherwise permitted under this Indenture; (xi) Investments in securities received in settlement of trade obligations in the Ordinary Course of Business; and (xii) other Investments in Persons who are not Affiliates of Holdings or any of its Subsidiaries not to exceed $5 million at any time outstanding. "PERMITTED LIENS" means: (i) Liens to secure the performance of statutory obligations, surety or appeal bonds, or other obligations of a like nature incurred in the Ordinary Course of Business; (ii) Liens for Taxes, or claims that are (x) not yet due and payable or (y) which are due and payable and are being contested in good faith by appropriate proceedings which stay enforcement of such Liens; provided that appropriate provisions shall have been established therefor in accordance with GAAP, and further provided that no notice of lien has been filed or recorded with any Governmental Authority with respect thereto; (iii) any judgment Lien arising out of a judgment not constituting an Event of Default under Section 7.01; and (iv) statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen and other similar liens imposed by law, which are incurred in the Ordinary Course of Business for sums not more than ninety (90) days delinquent or which are being diligently contested in good faith in a manner which stays enforcement of such Liens; provided that appropriate provisions shall have been established therefor in accordance with GAAP. "PERMITTED PARTIALLY OWNED SUBSIDIARY" means the Exempt Subsidiaries and each other Subsidiary designated as a Permitted Partially Owned Subsidiary by the Company in writing to the Trustee, provided (i) that with respect to each Permitted Partially Owned Subsidiary other than the Exempt Subsidiaries, Capital Stock representing 70% or more of the aggregate voting and economic interests in such Subsidiary is directly or indirectly owned, beneficially and of record, by the Company, (ii) the Company shall use its commercially Page 15 reasonable efforts to cause each Subsidiary to become a Guarantor, (iii) any Capital Stock not owned directly or indirectly by the Company is owned, directly or indirectly, by one or more licensed veterinarians (or one or more professional corporations owned by such licensed veterinarians) who will be actively involved in the business of such Subsidiary, and (iv) at the time of designation of any Permitted Partially Owned Subsidiary as such, that portion of Consolidated EBITDA attributable to all Permitted Partially Owned Subsidiaries (including the Subsidiary proposed to be designated as such) does not represent more than 10% of the Consolidated EBITDA for the four-Fiscal Quarter period most recently ended. "PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of Holdings or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to Refinance other Indebtedness of any such Persons; PROVIDED, HOWEVER, that (i) the principal amount of such Permitted Refinancing Indebtedness does not exceed the principal amount plus accrued interest and premium, if any (set forth in the original instrument representing such Indebtedness), of the Indebtedness so Refinanced (plus the amount of reasonable fees and expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date on or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, at the time of such Refinancing, the Indebtedness being Refinanced; (iii) if the Indebtedness being Refinanced is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being Refinanced; and (iv) such Indebtedness is Incurred by the Person who is the obligor on the Indebtedness being Refinanced. "Permitted Refinancing Indebtedness" shall not include Indebtedness under the Credit Agreement which may be Refinanced in accordance with the definition thereof. "PERSON" means any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or government or agency or political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "PIK NOTES" has the meaning ascribed thereto in the recitals. "PREFERRED STOCK" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation, and shall include the 14% Series A Senior Redeemable Exchangeable Cumulative Preferred Stock of Holdings and the 12% Series B Junior Redeemable Cumulative Preferred Stock of Holdings. "PRINCIPALS" means GEI and certain entities affiliated with (i) Trust Company of the West and Hamilton Lane Advisors and (ii) the following limited partners in GEI: CalPERS, Caisse De Depot, Procific and PPM America. "PURCHASE DATE" is defined in SECTION 4.10(A). Page 16 "PURCHASE AGREEMENT" means the Purchase Agreement, dated as of the Closing Date, by and among Holdings and the Purchasers. "PURCHASERS" is defined in the APPENDIX. "QIB" is defined in the APPENDIX. "QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified Capital Stock. "REDEMPTION DATE," when used with respect to any Note to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture and the Notes. "REDEMPTION PRICE," when used with respect to any Note to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture and the Notes. "REFINANCE" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "REFINANCED" and "REFINANCING" shall have correlative meanings. "REGISTERED EXCHANGE OFFER" is defined in the APPENDIX. "REGISTRAR" is defined in SECTION 2.03. "REGISTRATION DEFAULT" is defined in EXHIBIT A. "REGULAR RECORD DATE" is defined in EXHIBIT A. "REGULATION S" is defined in the APPENDIX. "RELATED PARTY" with respect to any Principal means (i) any controlling stockholder of such Principal, any Subsidiary of such Principal or any general partner of such Principal, and (ii) any Affiliate of such Principal and any investment fund or investment partnership managed by any Person that is, or is an Affiliate of, such Principal to the extent such Affiliate or other investment fund or investment partnership makes an Investment in Holdings through the acquisition of Capital Stock from Holdings, and with respect to any Management Investor, means a revocable inter-vivos trust established by such Person, such Person's estate, spouse, child, parent or other relative (by blood, marriage or adoption) of the first degree, or any trust established for the benefit of any of the foregoing. "REPRESENTATIVE" means the indenture trustee or other trustee, agent or representative in any respect of any Designated Senior Indebtedness; PROVIDED that if, and for so long as, any Designated Senior Indebtedness lacks such a representative, then the Representative for such Designated Senior Indebtedness shall at all times constitute the holders of a majority in outstanding principal amount of such Designated Senior Indebtedness in respect of any Designated Senior Indebtedness. In the case of Indebtedness under the Credit Agreement, the Page 17 Representative shall mean Wells Fargo Bank, N.A. (333 South Grand Avenue, Los Angeles, California 90071, Attention: S. Michael St. Geme (telecopier no.: (213) 628-9694)). or any successor thereto under the Credit Agreement of which the Trustee is notified. "REQUIRED HOLDERS" means Holders holding more than 50% of the aggregate outstanding principal amount of the outstanding Notes (exclusive of Notes then owned directly or indirectly by Holdings, the Company or any of their respective Subsidiaries or Affiliates). "RESTRICTED INVESTMENT" means an Investment other than a Permitted Investment. "RESTRICTED NOTES LEGEND" is defined in the APPENDIX. "RESTRICTED PAYMENTS" is defined in SECTION 5.02. "RESTRICTED SUBSIDIARY" means either a Wholly Owned Subsidiary or a Permitted Partially Owned Subsidiary. "RULE 501" is defined in the APPENDIX. "RULE 144A" is defined in the APPENDIX. "SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to Holdings or a Subsidiary of any property, whether owned by Holdings or any Subsidiary at the Closing Date or later acquired, which has been or is to be sold or transferred by Holdings or such Subsidiary to such Person or any other Person from whom funds have been or are to be advanced by such Person on the security of such property. "SECURITIES ACT" is defined in the APPENDIX. "SELLER NOTES" means, collectively, any unsecured promissory notes issued by Holdings to any seller or sellers in connection with a Permitted Acquisition. "SENIOR INDEBTEDNESS" is defined in the Company Indenture. "SHELF REGISTRATION STATEMENT" is defined in the APPENDIX. "SPECIAL INTEREST" is defined in EXHIBIT A. "SPECIAL MANDATORY REDEMPTION" is defined in paragraph 6 of the Notes. "SPECIFIED ASSETS" means the investment by the Company or its Subsidiaries specified in numbers 1 and 2 in Schedule 1(tt) to the Purchase Agreement. "STATED MATURITY," when used with respect to any Note or any installment of interest thereon, means the date specified in this Indenture or such Note as the scheduled fixed date on which the principal amount of such Note or such installment of interest is due and Page 18 payable and shall not include any contingent obligation to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for payment thereof. "STATED MATURITY DATE" is defined in EXHIBIT A. "STOCKHOLDERS AGREEMENT" means that certain Stockholders Agreement, dated as of the Closing Date, by and among Holdings, the Purchasers, the Principals and certain of the Management Investors. "SUBORDINATED INDEBTEDNESS" means any Indebtedness of Holdings permitted hereunder which is expressly subordinated to and junior to the payment and performance of the Notes to the same extent the Company Notes are subordinated to the Indebtedness Incurred by the Company under the Credit Documents as of the date hereof. "SUBSIDIARY" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (A) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (B) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). Any Person becoming a Subsidiary of Holdings after the date of this Indenture should be deemed to have Incurred all of its outstanding Indebtedness on the date it becomes a Subsidiary. "SUCCESSOR COMPANY" is defined in SECTION 6.02. "TAX RETURNS" means all reports and returns (including elections, declarations, disclosures, schedules, estimates and information returns) required to be filed with respect to Taxes. "TAXES" means all federal, state, local or foreign income, gross receipts, windfall profits, severance, property, production, sales, use, license, excise, franchise, employment, withholding or other taxes, duties or assessments of any kind whatsoever imposed on any Person, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties and includes any liability for Taxes of another Person by contract, as a transferee or successor, under Treasury regulation Section 1.1502-6 or analogous state, local or foreign law provision or otherwise. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C.ss.ss. 77aaa-77bbbb), as amended from time to time. "TRANSACTION DOCUMENTS" is defined in the Purchase Agreement. "TRANSFER RESTRICTED NOTES" is defined in the APPENDIX. Page 19 "TRIGGER DATE" is defined in the Exchange and Registration Rights Agreement. "TRUSTEE" is defined in the preamble. "TRUST OFFICER" means, when used with respect to the Trustee, the president, any vice president (whether or not designated by a number or a word or words added before or after the title "vice president"), the secretary, any assistant secretary, the treasurer, any assistant treasurer, or any other officer of the Trustee in its Corporate Trust Administration Department customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject. "UNITED STATES" shall have the meaning assigned to such term in Regulation S. "U.S. GOVERNMENT OBLIGATIONS" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and that are not callable or redeemable at the issuer's option. "WARRANT AGREEMENT" is defined in the Purchase Agreement. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (A) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (B) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. SECTION 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. This Indenture is subject to the mandatory provisions of the TIA, which are incorporated by reference in and made a part of this Indenture. The following TIA terms have the following meanings: "indenture securities" means the Notes, the PIK Notes and the Exchange Notes. "indenture security holder" means a Holder. "indenture to be qualified" means this Indenture. Page 20 "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means Holdings and any other obligor on the indenture securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule have the meanings assigned to them by such definitions. SECTION 1.03. RULES OF CONSTRUCTION. Unless the context otherwise requires: (a) a term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (c) "or" is not exclusive; (d) "including" means including without limitation; (e) "to" and "until" each mean "to but excluding"; (f) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein); (g) any reference herein to any Person shall be construed to include such Person's successors and assigns; (h) words in the singular include the plural and words in the plural include the singular; (i) unsecured Indebtedness shall not be deemed to be subordinate or junior to secured Indebtedness merely by virtue of its nature as unsecured Indebtedness; (j) the principal amount of any non-interest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date prepared in accordance with GAAP; and (k) the principal amount of any Preferred Stock shall be (i) the maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock, whichever is greater. Page 21 ARTICLE 2. THE NOTES SECTION 2.01. FORM AND DATING. Provisions relating to the Initial Notes, the PIK Notes and the Exchange Notes to be issued in exchange for the Initial Notes or otherwise as provided in this Indenture are set forth in the Appendix, which is hereby incorporated in and expressly made a part of this Indenture. The Initial Notes and the Trustee's certificate of authentication relating thereto shall each be substantially in the form of Exhibit A hereto, which is hereby incorporated in and expressly made a part of this Indenture. The Exchange Notes and the Trustee's certificate of authentication relating thereto shall be substantially in the form of Exhibit B hereto, which is hereby incorporated in and expressly made a part of this Indenture. The PIK Notes and the Trustee's certificate of authentication relating thereto shall each be in the form of Exhibit A, if the PIK Notes are issued as interest on any Initial Notes, and in the form of Exhibit B, if the PIK Notes are issued as interest on any Exchange Notes. The Notes may have notations, legends or endorsements required by law, stock exchange rule, agreements to which Holdings is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to Holdings). Each Note shall be dated the date of its authentication. The Notes shall bear interest as set forth in the first paragraph of the reverse side of the Notes. The Notes shall be issuable only in registered form without interest coupons and only, for Notes other than PIK Notes (which PIK Notes shall be issued in any whole dollar amount, rounded to the nearest dollar), in denominations of $1,000 (in principal amount at maturity) and multiples thereof. SECTION 2.02. EXECUTION AND AUTHENTICATION. One officer shall sign the Notes for Holdings by manual or facsimile signature. If an officer whose signature is on a Note no longer holds that office at the time the Trustee authenticates the Note, the Note shall be valid nevertheless. A Note shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Note. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon written direction of Holdings, authenticate and make available for delivery Notes as set forth in the Appendix. The Trustee may appoint an authenticating agent reasonably acceptable to Holdings to authenticate the Notes. Any such appointment shall be evidenced by an instrument signed by a Trust Officer, a copy of which shall be furnished to Holdings. Unless limited by the terms of such appointment, an authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as any Registrar, Paying Agent or agent for service of notices and demands. Page 22 SECTION 2.03. REGISTRAR AND PAYING AGENT. (a) Holdings shall maintain an office or agency, which shall be located in the Borough of Manhattan, The City of New York, where Notes may be presented for registration of transfer or for exchange (the "REGISTRAR") and an office or agency where Notes may be presented for payment (the "PAYING AGENT"). The Registrar shall keep a register of the Notes and of their transfer and exchange. Holdings may have one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent, and the term "Registrar" includes any co-registrars. Holdings initially appoints the Trustee as (i) Registrar and Paying Agent in connection with the Notes and (ii) the Notes Custodian with respect to the Global Exchange Notes (as defined in the Appendix). (b) Holdings shall enter into an appropriate agency agreement with any Registrar or Paying Agent not a party to this Indenture, which shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. Holdings shall notify the Trustee of the name and address of any such agent. If Holdings fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to SECTION 8.07. Holdings or any of its domestically organized Wholly Owned Subsidiaries may act as Paying Agent or Registrar. (c) Holdings may remove any Registrar or Paying Agent upon written notice to such Registrar or Paying Agent and to the Trustee; PROVIDED, HOWEVER, that no such removal shall become effective until (i) acceptance of an appointment by a successor as evidenced by an appropriate agreement entered into by Holdings and such successor Registrar or Paying Agent, as the case may be, and delivered to the Trustee or (ii) notification to the Trustee that the Trustee shall serve as Registrar or Paying Agent until the appointment of a successor in accordance with clause (i) above. The Registrar or Paying Agent may resign at any time upon written notice to Holdings and the Trustee; PROVIDED, HOWEVER, that the Trustee may resign as Paying Agent or Registrar only if the Trustee also resigns as Trustee in accordance with SECTION 8.08. SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. Prior to each due date of the principal of and interest on any Note, Holdings shall deposit with the Paying Agent (or if Holdings or a Subsidiary is acting as Paying Agent, segregate and hold in trust for the benefit of the Persons entitled thereto) a sum sufficient to pay such principal and interest when so becoming due. Holdings shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal of or interest on the Notes and shall notify the Trustee of any default by Holdings in making any such payment. If Holdings or a Subsidiary of Holdings acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. Holdings at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by the Paying Agent. Upon complying with this SECTION 2.04, the Paying Agent shall have no further liability for the money delivered to the Trustee. SECTION 2.05. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, Holdings shall furnish, or cause the Registrar to furnish, to the Page 23 Trustee, in writing at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders. SECTION 2.06. TRANSFER AND EXCHANGE. The Notes shall be issued in registered form and shall be transferable only upon the surrender of a Note for registration of transfer and in compliance with the Appendix. When a Note is presented to the Registrar with a request to register a transfer, the Registrar shall register the transfer as requested if its requirements therefor are met. When Notes are presented to the Registrar with a request to exchange them for an equal principal amount of Notes of other denominations, the Registrar shall make the exchange as requested if the same requirements are met. To permit registration of transfers and exchanges, Holdings shall execute and the Trustee shall authenticate Notes at the Registrar's request. Holdings may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with any transfer or exchange pursuant to this SECTION 2.06. Holdings shall not be required to make and the Registrar need not register transfers or exchanges of Notes selected for redemption (except, in the case of Notes to be redeemed in part, the portion thereof not to be redeemed) or any Notes for a period of 15 days before a selection of Notes to be redeemed. Prior to the due presentation for registration of transfer of any Note, Holdings, the Trustee, the Paying Agent and the Registrar shall treat the Person in whose name a Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest, if any, on such Note and for all other purposes whatsoever, whether or not such Note is overdue, and none of Holdings, the Paying Agent, the Trustee or the Registrar shall be affected by notice to the contrary. Any Holder of a Global Exchange Note shall, by acceptance of such Global Exchange Note, agree that transfers of beneficial interest in such Global Exchange Note may be effected only through a book-entry system maintained by (a) the Holder of such Global Exchange Note (or its agent) or (b) any Holder of a beneficial interest in such Global Exchange Note, and that ownership of a beneficial interest in such Global Exchange Note shall be required to be reflected in a book entry. All Notes issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Notes surrendered upon such transfer or exchange. SECTION 2.07. REPLACEMENT NOTES. If a mutilated Note is surrendered to the Registrar or if the Holder of a Note claims that the Note has been lost, destroyed or wrongfully taken, Holdings shall issue and the Trustee shall authenticate a replacement Note if the requirements of Section 8-405 of the New York Uniform Commercial Code are met, such that the Holder (a) satisfies Holdings or the Trustee within a reasonable time after such Holder has notice of such loss, destruction or wrongful taking and the Registrar does not register a transfer prior to receiving such notification, (b) makes such request to Holdings or the Trustee prior to the Note being acquired by a protected purchaser as defined in Section 8-303 of the New York Uniform Page 24 Commercial Code (a "PROTECTED PURCHASER") and (c) satisfies any other reasonable requirements of the Trustee. If required by the Trustee or Holdings, such Holder shall furnish an indemnity bond sufficient in the judgment of the Trustee to protect Holdings, the Trustee, the Paying Agent and the Registrar from any loss that any of them may suffer if a Note is replaced, unless the Holder is an institution with a Consolidated Net Worth in excess of $100 million and contractually commits to protect Holdings, the Trustee, the Paying Agent and the Registrar from any loss that any of them may suffer if a Note is replaced, in which case no such indemnity bond may be required. Holdings and the Trustee may charge the Holder for their expenses in replacing a Note. In the event any such mutilated, lost, destroyed or wrongfully taken Note has become or is about to become due and payable, Holdings in its discretion may pay such Note instead of issuing a new Note in replacement thereof. Every replacement Note is an additional obligation of Holdings. The provisions of this SECTION 2.07 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, lost, destroyed or wrongfully taken Notes. SECTION 2.08. OUTSTANDING NOTES. Notes outstanding at any time are all Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this SECTION 2.08 as not outstanding. Subject to SECTION 11.06, a Note does not cease to be outstanding because Holdings or an Affiliate of Holdings holds the Note. If a Note is replaced pursuant to SECTION 2.07, it ceases to be outstanding unless the Trustee and Holdings receive proof satisfactory to them that the replaced Note is held by a protected purchaser. If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a Redemption Date or maturity date money sufficient to pay all principal and interest and Special Interest, if any, payable on that date with respect to the Notes (or portions thereof) to be redeemed or maturing, as the case may be, and the Paying Agent is not prohibited from paying such money to the Holders on that date pursuant to the terms of this Indenture, then on and after that date such Notes (or portions thereof) cease to be outstanding and interest on them ceases to accrue. SECTION 2.09. TEMPORARY NOTES. Until Definitive Notes are ready for delivery, Holdings may prepare and the Trustee shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of Definitive Notes but may have variations that Holdings considers appropriate for temporary Notes. Without unreasonable delay, Holdings shall prepare and the Trustee shall authenticate Definitive Notes and deliver them in exchange for temporary Notes upon surrender of such temporary Notes at the office or agency of Holdings, without charge to the Holder. SECTION 2.10. CANCELLATION. Holdings at any time may deliver Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Notes Page 25 surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment or cancellation and deliver canceled Notes to Holdings pursuant to written direction by an officer. Holdings may not issue new Notes to replace Notes it has redeemed, paid or delivered to the Trustee for cancellation. The Trustee shall not authenticate Notes in place of canceled Notes other than pursuant to the terms of this Indenture. SECTION 2.11. DEFAULTED INTEREST. If Holdings defaults in a payment of interest or Special Interest, if any, on the Notes, Holdings shall pay the defaulted interest (plus interest on such defaulted interest to the extent lawful) in any lawful manner. Holdings may pay the defaulted interest to the Persons who are Holders on a subsequent special record date. Holdings shall fix or cause to be fixed any such special record date and payment date to the reasonable satisfaction of the Trustee and shall promptly mail or cause to be mailed to each Holder a notice that states the special record date, the payment date and the amount of defaulted interest to be paid. SECTION 2.12. CUSIP NUMBERS. Holdings in issuing the Notes may use Committee on Uniform Securities Identification Procedures numbers (the "CUSIP NUMBERS") (if then generally in use) and, if so, the Trustee shall use CUSIP numbers in notices of redemption as a convenience to Holders; PROVIDED, HOWEVER, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. ARTICLE 3. REDEMPTION SECTION 3.01. NOTICES TO TRUSTEE. If Holdings elects to redeem Notes pursuant to SECTION 4.09, SECTION 4.10 or paragraphs 5 or 6 of the Notes, it shall notify the Trustee in writing of the Redemption Date and the principal amount at maturity of Notes to be redeemed. The redemption provisions of paragraphs 5 and 6 of the Notes are fully incorporated herein. The Trustee may conclusively rely on an Officers' Certificate and the calculations given therein in making any redemption in accordance with Paragraph 6 of the Notes. Holdings shall give each notice to the Trustee provided for in this SECTION 3.01 at least 30 days before the Redemption Date unless the Trustee consents to a shorter period. Such notice shall be accompanied by an Officers' Certificate and an Opinion of Counsel from Holdings to the effect that such redemption will comply with the conditions herein. If fewer than all the Notes are to be redeemed, the record date relating to such redemption shall be selected by Holdings and given to the Trustee, which record date shall be not fewer than 15 days after the date of notice to the Trustee. Any such notice may be canceled at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect. Page 26 SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED. If fewer than all the Notes are to be redeemed, the Trustee shall select the Notes to be redeemed pro rata from all of the Holders. The Trustee shall make the selection from outstanding Notes not previously called for redemption. The Trustee may select for redemption portions of the principal amount at maturity of Notes that have denominations larger than $1,000. Notes and portions of them the Trustee selects shall be in principal amounts at maturity of $1,000 or a multiple thereof. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. The Trustee shall notify Holdings promptly of the Notes or portions of Notes to be redeemed. SECTION 3.03. NOTICE OF REDEMPTION. (a) At least 10 days but not more than 60 days before a date for redemption of Notes, Holdings shall mail a notice of redemption by first-class mail or by telefacsimile, with written confirmation of receipt, to each Holder of Notes to be redeemed at such Holder's registered address. The notice shall identify the Notes to be redeemed and shall state: (i) the Redemption Date; (ii) the Redemption Price and the amount of accrued interest to the Redemption Date; (iii) the name and address of the Paying Agent; (iv) that Notes called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (v) if fewer than all the outstanding Notes are to be redeemed, the certificate numbers and principal amount at maturity of the particular Notes to be redeemed; (vi) that, unless Holdings defaults in making such redemption payment or the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture, interest and any Special Interest on Notes (or portion thereof) called for redemption ceases to accrue on and after the Redemption Date; (vii) the CUSIP number, if any, printed on the Notes being redeemed; and (viii) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. (b) At Holdings' request, the Trustee shall give the notice of redemption in the Company's name and at Holdings' expense. In such event, Holdings shall provide the Trustee with the information required by this SECTION 3.03. Page 27 SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed, Notes called for redemption become due and payable on the Redemption Date and at the Redemption Price stated in the notice. Upon surrender to the Paying Agent, such Notes shall be paid at the Redemption Price stated in the notice, plus accrued interest and Special Interest, if any, to the Redemption Date; PROVIDED, HOWEVER, that if the Redemption Date is after a Regular Record Date and on or prior to the Interest Payment Date, the accrued interest and Special Interest, if any, shall be payable to the Holder of the redeemed Notes registered on the relevant Regular Record Date. Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. Prior to 10:00 a.m. (New York City time) on the Redemption Date, Holdings shall deposit with the Paying Agent (or, if Holdings or a Subsidiary is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the Redemption Price of, and accrued interest and Special Interest, if any, on all Notes to be redeemed on that date other than Notes or portions of Notes called for redemption that have been delivered by Holdings to the Trustee for cancellation. On or after the Redemption Date, the interest shall cease to accrue on Notes or portions thereof called for redemption so long as Holdings has deposited with the Paying Agent funds sufficient to pay the principal of, plus accrued and unpaid interest and Special Interest, if any, on, the Notes to be redeemed, unless the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture. SECTION 3.06. NOTES REDEEMED IN PART. Upon surrender of a Note that is redeemed in part, Holdings shall execute and the Trustee shall authenticate for the Holder (at Holdings' expense) a new Note equal in principal amount at maturity to the unredeemed portion of the Note surrendered. ARTICLE 4. AFFIRMATIVE COVENANTS SECTION 4.01. PAYMENT OF NOTES. (a) Holdings shall promptly pay the principal of and interest on the Notes on the dates and in the manner provided in the Notes and in this Indenture. Principal of and interest on the Notes shall be considered paid on the date due if on such date the Trustee or the Paying Agent holds in accordance with this Indenture money sufficient to pay all principal of and interest on the Notes then due and the Trustee or the Paying Agent, as the case may be, is not prohibited from paying such money to the Holders on that date pursuant to the terms of this Indenture. (b) Holdings shall pay interest on overdue principal of the Notes at the rate specified therefor in the Notes and shall pay interest on overdue installments of interest at the same rate to the extent lawful. Page 28 SECTION 4.02. COMMISSION REPORTS. Notwithstanding that Holdings may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, Holdings shall from and after a Note Registration, file with the Commission, and provide the Trustee, Holders and prospective Holders (upon request) within 15 days after it files them with the Commission, copies of its annual report and the information, documents and other reports that are specified in Section 13 and 15(d) of the Exchange Act. In addition, following an initial Equity Offering, Holdings shall furnish to the Trustee and the Holders, promptly upon their becoming available, copies of the annual report to shareholders and any other information provided by Holdings to its public shareholders generally. Holdings also shall comply with the other provisions of TIA ss. 314(a). SECTION 4.03. PRESERVATION OF CORPORATE EXISTENCE. Holdings shall do or cause to be done all things necessary to preserve and keep in full force and effect (a) its corporate existence, and the corporate, limited liability company, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of Holdings or any such Subsidiary and (b) the rights (charter and statutory) and licenses of Holdings and its Subsidiaries; PROVIDED, HOWEVER, that Holdings shall not be required to preserve any such right or license, or the corporate, limited liability company, partnership or other existence of any of its Subsidiaries if the loss thereof does not and would not reasonably be expected to result in a Material Adverse Effect. SECTION 4.04. MAINTENANCE OF PROPERTIES. Holdings will cause all properties used or useful in the conduct of its business or the business of any of its Subsidiaries to be maintained and kept in good condition, repair and working order and will cause to be made all necessary repairs, renewals and replacements thereof, all as in the judgment of Holdings may be necessary so that the business carried on in connection therewith may be properly conducted; PROVIDED, HOWEVER, that the foregoing shall not prevent Holdings from discontinuing the operation or maintenance of any of such properties if such discontinuance does not and would not reasonably be expected to result in a Material Adverse Effect. SECTION 4.05. TAXES (a) PAYMENT OF TAXES AND OTHER CLAIMS. Holdings shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all Taxes of Holdings or any of its Subsidiaries and (ii) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon the property of Holdings or any of its Subsidiaries; PROVIDED, HOWEVER, that Holdings shall not be required to pay or discharge or cause to be paid or discharged any such Tax or claim (1) whose amount, applicability or validity is being contested in good faith by appropriate proceedings, PROVIDED that appropriate reserves therefor are established in Holdings' consolidated financial statements in accordance with GAAP or (2) if the failure to pay such Tax or claim would not reasonably be expected to have a Material Adverse Effect or would result in a Permitted Lien. (b) TAX RETURNS. Holdings and its Subsidiaries shall timely file or cause to be filed when due all material Tax Returns that are required to be filed by or with respect to Page 29 Holdings or any of its Subsidiaries for taxable years ending after the Closing Date and shall pay any Taxes due in respect of such Tax Returns except as permitted under SECTION 4.05(A). (c) CONTEST PROVISIONS. Prior to Note Registration, Holdings shall promptly notify the Holders in writing upon receipt by Holdings or any of its Subsidiaries of notice of any pending or threatened federal, state, local or foreign income or franchise Tax audits or assessments which may materially affect the Tax liabilities of Holdings or any of its Subsidiaries. (d) TRANSFER TAXES. All transfer, transfer gains, documentary, sales, use, stamp, registration and other similar Taxes and fees (including costs and expenses relating to such Taxes) incurred in connection with the consummation of the transactions contemplated by this Indenture shall be borne by Holdings. The Holders shall reasonably cooperate with Holdings in the preparation and filing of any such Tax Returns and other documentation. SECTION 4.06. COMPLIANCE CERTIFICATE. Holdings shall deliver to the Trustee within 120 days after the end of each fiscal year of Holdings an Officers' Certificate made on behalf of Holdings stating that in the course of the performance by the signers of their duties as officers of Holdings they would normally have knowledge of any Default and whether or not the signers know of any Default that occurred during such period. If they do, the certificate shall describe the Default, its status and what action Holdings is taking or proposes to take with respect thereto. Holdings also shall comply with Section 314(a)(4) of the TIA. SECTION 4.07. COMPLIANCE WITH LAW. Holdings will, and will cause each of its Subsidiaries to, comply with all Applicable Laws and will obtain and maintain, and will cause each of its Subsidiaries to obtain and maintain, all Permits necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that any such non-compliance with Applicable Law or any failure to obtain or maintain such Permits, individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect. SECTION 4.08. INSURANCE. Holdings shall cause its Subsidiaries to maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and business against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities engaged in a similar businesses. SECTION 4.09. OFFER TO REPURCHASE UPON CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control, Holdings shall make an offer (a "CHANGE OF CONTROL OFFER") to each Holder to repurchase all or any part (equal to $1,000 or a multiple thereof) of each Holder's Notes at an offer price in cash equal to 101% of the outstanding principal amount thereof, plus accrued and unpaid interest thereon, if any, until the Change of Control Payment Date (the "CHANGE OF CONTROL PAYMENT") in accordance with the terms set forth below. Holdings shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws Page 30 and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control, and Holdings shall not be in violation of this Indenture by reason of any act required by such rule or other applicable law. (b) Within 30 days following any Change of Control, Holdings shall mail a notice to each Holder stating: (i) that the Change of Control Offer is being made pursuant to this SECTION 4.09 and that all Notes tendered will be accepted for payment; (ii) the purchase price and the purchase date, which shall be at least 10 Business Days but no more than 60 days from the date on which the Company mails notice of the Change of Control (the "CHANGE OF CONTROL PAYMENT DATE"); (iii) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer shall be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent for such purpose, at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (iv) that Holders will be entitled to withdraw their election if Holdings or its designated agent for such purpose, receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and (v) other information required to be included pursuant to SECTION 3.03. (c) On the Change of Control Payment Date, Holdings shall, to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer and (ii) pay to the Holders of Notes or portions thereof so tendered an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered. Holdings shall promptly mail or deliver by wire transfer to each Holder of Notes so tendered the Change of Control Payment for such Notes, and Holdings shall promptly execute and mail (or cause to be transferred by book-entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; PROVIDED, HOWEVER, that each such new Note shall be in a principal amount of $1,000 or a multiple thereof. Holdings shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (d) Holdings shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in a manner, at the times and otherwise in compliance with the requirements set forth in this SECTION 4.09 and such third party purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. Page 31 SECTION 4.10. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS. (a) In the event that, pursuant to SECTION 5.05, Holdings shall be required to commence an offer to all Holders to purchase Notes (an "ASSET SALE OFFER"), it shall follow the procedures specified in this SECTION 4.10. Each Asset Sale Offer shall remain open for not less than ten (10) Business Days nor more than sixty (60) days immediately following its commencement, except to the extent that a longer period is required by Applicable Law (the "OFFER PERIOD"). On the Business Day immediately after the termination of the Offer Period (the "PURCHASE DATE"), Holdings shall purchase the principal amount of Notes required to be purchased pursuant to SECTION 5.05 plus accrued and unpaid interest, if any, thereon to the Purchase Date (the "OFFER AMOUNT") or, if less than the Offer Amount has been tendered, Holdings shall purchase all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. (b) Upon the commencement of an Asset Sale Offer, Holdings shall send, by first class mail, a notice to each of the Holders which shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (i) that the Asset Sale Offer is being made pursuant to this SECTION 4.10 and SECTION 5.05 and the length of time the Asset Sale Offer shall remain open; (ii) the Offer Amount, the purchase price and the Purchase Date; (iii) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed to Holdings at the address specified in the notice at least three Business Days before the Purchase Date; (iv) that Holders shall be entitled to withdraw their election if Holdings receives, not later than the second Business Day prior to the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; and (v) other information required to be included pursuant to SECTION 3.03. (c) On or before the Purchase Date, Holdings shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Holders and the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by Holdings in accordance with the terms of this SECTION 4.10. Holdings shall promptly (but in any case not later than five (5) Business Days after the Purchase Date) mail or deliver by wire transfer to each Page 32 tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by Holdings for purchase, and Holdings shall promptly issue a new Note and deliver it to such Holder, in a principal amount at maturity equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by Holdings to the Holder thereof. SECTION 4.11. FURTHER ASSURANCES. Holdings shall, upon the request of Holders, execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the provisions of this Indenture. ARTICLE 5. NEGATIVE COVENANTS APPLICABLE TO HOLDINGS AND ITS SUBSIDIARIES SECTION 5.01. STAY, EXTENSION AND USURY LAWS. Holdings covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of its obligations under the Notes or this Indenture, and Holdings (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants (to the extent that it may lawfully do so) that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holders, but shall suffer and permit the execution of every such power as though no such law has been enacted. SECTION 5.02. RESTRICTED PAYMENTS. (a) Holdings shall not, and shall not permit any of its Subsidiaries to, (i) declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of Capital Stock or other Equity Interests of, including any payment in connection with a merger or consolidation involving Holdings or any of its Subsidiaries, (ii) purchase, redeem or otherwise acquire for value any shares of Capital Stock or other Equity Interests of Holdings or any of its Subsidiaries now or hereafter outstanding, (iii) make any payment or prepayment of principal of, premium, if any, interest, redemption, exchange, purchase, retirement, defeasance, sinking fund or other payment with respect to, any Subordinated Indebtedness or (iv) make any Restricted Investments (the items described in CLAUSES (I), (II), (III), and (IV) are referred to as "RESTRICTED PAYMENTS"); except that the Company or any Subsidiary of the Company may make a Restricted Payment not involving any dividend or other distribution on, or repurchase or redemption of, Capital Stock of Holdings if at the time of and after giving effect to such Restricted Payment; (A) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (B) the Company would, at the time such Restricted Payment was made and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-Fiscal Quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Coverage Ratio Test set forth in SECTION 5.04(A) hereof; and Page 33 (C) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Subsidiaries after the date of this Indenture (excluding Restricted Payments permitted by the next succeeding paragraph), is less than the sum of (1) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first Fiscal Quarter commencing after the date of this Indenture to the end of the Company's most recently ended Fiscal Quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (2) 100% of the aggregate net cash proceeds received by the Company from contributions of capital from Holdings to the Company since the date of this Indenture or the issue or sale since the date of this Indenture of Equity Interests of the Company or of debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or convertible debt securities) sold to a Subsidiary of the Company and other than Disqualified Capital Stock or debt securities that have been converted into Disqualified Capital Stock), plus (3) to the extent that any Restricted Investment that was made after the date of this Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (x) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (y) the initial amount of such Restricted Investment. (b) The foregoing provisions shall not prohibit any of the following if no Default or Event of Default shall have occurred and be continuing immediately after any such transaction: (i) the defeasance, redemption or repurchase of Subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness or the substantially concurrent sale (other than to a Subsidiary of Holdings) of Capital Stock of Holdings (other than Disqualified Capital Stock); provided, however, that the amount of any such net cash proceeds from the sale of Capital Stock of Holdings that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (C)(2) of the preceding paragraph; (ii) the consummation of the Merger (including the making of Restricted Payments from the Company to Holdings to allow Holdings to make Restricted Payments necessary to consummate the Merger or prepay Indebtedness as to which Holdings is an obligor, and further including Holdings and/or the Company making (or Company making Restricted Payments to Holdings to allow Holdings to make) payments on all (A) Indebtedness of Holdings and its Subsidiaries existing prior to the Closing Date (including any thereof constituting Subordinated Indebtedness), and (B) noncompete payments to senior officers of Holdings and the Company, payments in connection with termination of employment contracts, payments of stay or retention bonuses, and deferred payments on restricted Capital Stock of Holdings held by certain employees of Holdings and the Company in connection therewith, to the extent the same Page 34 have been disclosed to the Purchasers pursuant to Schedule 1(q) of the Purchase Agreement; (iii) the repurchase, redemption or other acquisition or retirement for value by Holdings of (and the making of Restricted Payments by the Company to Holdings to permit Holdings to repurchase, redeem, acquire or retire for value) any Equity Interests of Holdings held by Management Investors and their Related Parties; provided, however, that, at the time of such Restricted Payment and after giving effect thereto, the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests in the current Fiscal Year shall not exceed $1,500,000 plus the unused portion of said $1,500,000 from the immediately preceding Fiscal Year plus the aggregate cash proceeds received by Holdings during such Fiscal Year from any issuance or reissuance of Equity Interests of Holdings to Management Investors and their Related Parties plus any proceeds received during such Fiscal Year under key man insurance policies with respect to such Management Investors; and PROVIDED, FURTHER, that any such aggregate cash proceeds from any such issuance or reissuance of Equity Interests shall, to the extent actually used to repurchase other Equity Interests of Holdings, be excluded from clause (C)(2) of the preceding paragraph; (iv) the redemption, repurchase or other acquisition or retirement for value by the Company or any Subsidiary of the Company of any Capital Stock of a Permitted Partially Owned Subsidiary owned by a licensed veterinarian (or professional veterinary corporation) whose employment by the Company or any Subsidiary has terminated, provided the consideration paid does not exceed the fair market value of such Capital Stock as determined by the Board of Directors in good faith and all Indebtedness owed by such veterinarian or professional corporation to Holdings and its Subsidiaries is repaid in full concurrently with such redemption or repurchase; (v) the payment by any Subsidiary of Holdings of any distribution or dividend on its Capital Stock or the redemption or repurchase by any Subsidiary of the Company of its Capital Stock to the extent the proceeds thereof or any property transferred pursuant thereto are paid pro rata to holders of such Capital Stock; (vi) the making by Holdings or the Company of regularly scheduled payments in respect of any Subordinated Indebtedness permitted hereby in accordance with the terms of, and only to the extent required by, and subject to the subordination provisions contained in, any agreement pursuant to which such Subordinated Indebtedness was issued, so long as no Event of Default described in SECTION 7.01 has occurred or is continuing or will result therefrom, provided that in the event that any Restricted Payment otherwise permitted under this clause (vi) is not permitted to be made because of such Events of Default, such Restricted Payment shall accrue and may be paid upon the waiver or cure of the applicable Event of Default so long as no other Event of Default described in SECTION 7.01 has occurred and is continuing or will result therefrom. Page 35 (vii) the making by the Company of Restricted Payments to Holdings to allow Holdings to make regularly scheduled payments (but not voluntary prepayments and not cash interest payments if Holdings is allowed to make payment of interest in PIK Notes) in respect of the Notes, Seller Notes, Earn-Out Obligations and to allow Holdings to make payments permitted under clause (vi) immediately preceding; (viii) the making by the Company of Restricted Payments to Holdings to allow Holdings to pay reasonable general administrative costs and expenses, to pay consolidated Tax liabilities of Holdings and its Subsidiaries, to pay obligations of Holdings due after the Closing Date under any Transaction Documents (as defined in the Purchase Agreement) to which Holdings is a party and to pay obligations of Holdings after the Closing Date with respect to any obligation of Holdings prior to the Asset Dropdown (as defined in the Purchase Agreement) which remain obligations of Holdings as a matter of law, and to pay amounts to Affiliates of Holdings which Holdings is permitted to pay under the provisions of SECTION 5.06 hereof; (ix) the making by the Company and its Subsidiaries of Permitted Acquisitions; (x) the making by the Company and its Subsidiaries of loans or advances to veterinarians (or professional corporations owned by such veterinarians) substantially involved in the business of a Subsidiary of the Company to allow such veterinarians (or such professional corporations) to acquire Capital Stock of such Subsidiary, so long as such Subsidiary remains a Permitted Partially Owned Subsidiary after such acquisition of its Capital Stock; and (xi) the making by the Company and its Subsidiaries of other Restricted Payments not to exceed $5.0 million in the aggregate since the date of this Indenture. (c) The amount of all Restricted Payments (other than cash) shall be the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) on the date of the Restricted Payment of the asset(s) proposed to be transferred by Holdings or such Subsidiary, as the case may be, pursuant to the Restricted Payment. SECTION 5.03. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. Holdings shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary of Holdings to (a)(i) pay dividends pro rata or make any other distributions pro rata with respect to any Capital Stock of such Subsidiary or any other interest or participation in, or measured by, such Subsidiary's profits, or (ii) pay any Indebtedness owed by such Subsidiary to Holdings or any of Holdings' other Subsidiaries, (b) make loans or advances to Holdings or any of Holdings' Subsidiaries or (c) transfer any of such Subsidiary's properties or assets pro rata to Holdings or any of Holdings' Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (i) Existing Indebtedness as in effect on the date of this Page 36 Indenture, (ii) the Credit Documents as in effect as of the date of this Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or Refinancings thereof permitted hereunder, PROVIDED, HOWEVER, that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or Refinancings are not materially more restrictive with respect to such provisions than those contained in the Credit Documents on the date hereof, (iii) the Company Indenture and the Company Notes as in effect as of the date of this Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or Refinancings thereof, (iv) this Indenture and the Notes, (v) applicable law, (vi) by reason of customary non-assignment provisions in leases, licenses and other agreements entered into in the Ordinary Course of Business and consistent with past practices, (vii) capital leases or purchase money obligations for property acquired in the Ordinary Course of Business that impose restrictions of the nature described in clause (vi) above on the property so acquired, (viii) Permitted Refinancing Indebtedness; PROVIDED, HOWEVER, that such restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive than those contained in the agreements governing the Indebtedness being Refinanced, (ix) any instrument governing Indebtedness, Capital Stock or assets of a Person acquired by any of Holdings' Subsidiaries as in effect at the time of such acquisition (except to the extent such instrument was created or such Indebtedness was Incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, PROVIDED that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be Incurred, (x) secured Indebtedness otherwise permitted to be Incurred pursuant to this Indenture that limits the right of the debtor thereunder to dispose of the assets securing such Indebtedness, (xi) contracts for the sale of assets, including without limitation customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary, (xii) restrictions on deposits or minimum net worth requirements imposed by customers under contracts entered into in the Ordinary Course of Business, (xiii) customary provisions in joint venture agreements, licenses and leases and other similar agreements entered into in the Ordinary Course of Business; and (xiv) statutory or contractual provisions requiring pro rata treatment of holders of Capital Stock of Subsidiaries constituting Permitted Partially Owned Subsidiaries. SECTION 5.04. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED CAPITAL STOCK OR PREFERRED STOCK (a) Holdings shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, Guarantee or otherwise become directly or indirectly liable, contingently or otherwise (including any operation of law), with respect to (collectively, "INCUR") any Indebtedness (including Acquired Indebtedness) and Holdings shall not issue any Disqualified Capital Stock and shall not permit any of its Subsidiaries to issue any Preferred Stock; provided, however, that the Company and its Subsidiaries may Incur Indebtedness (including Acquired Indebtedness), and the Company and the Company Guarantors may guarantee such Indebtedness, if immediately after the Incurrence of such Indebtedness, the Page 37 Consolidated Interest Coverage Ratio for the most recent four full fiscal quarter period exceeds 1.50 to 1.00 if such Incurrence is prior to September 30, 2002 and exceeds 1.75 to 1.00 if such Incurrence occurs thereafter (the test set forth in the foregoing clause is referred to herein as "COVERAGE RATIO TEST"). For the purpose of the Coverage Ratio Test, with respect to any period during which a Permitted Acquisition or an Asset Disposition has occurred (each a "SUBJECT TRANSACTION"), Consolidated EBITDA and the components of Consolidated Interest Expense shall be calculated with respect to such period on a pro forma basis (including pro forma adjustments arising out of events which are directly attributable to a specific transaction, are factually supportable and are expected to have a continuing impact, in each case determined on a basis which is consistent with Article 11 of Regulation S-X promulgated under the Securities Act and as interpreted by the staff of the Commission, which would include cost savings resulting from head count reduction, closure of facilities and similar restructuring charges which pro forma adjustments shall be certified on behalf of Holdings by the chief financial officer of Holdings) using the historical financial statements of any business so acquired or to be acquired or sold or to be sold and the consolidated financial statements of Holdings and its Subsidiaries which shall be reformulated as if such Subject Transaction, and any Indebtedness incurred or repaid in connection therewith, had been consummated or incurred or repaid at the beginning of such period (and assuming that such Indebtedness bears interest during any portion of the applicable measurement period prior to the relevant acquisition at the weighted average of the interest rates applicable to outstanding revolving loans under the Credit Agreement Incurred during such period); provided, however, such calculations of Consolidated Adjusted EBITDA with respect to Permitted Acquisitions, the consideration for which constitutes $3,000,000 or less, shall be based on reasonable estimations of such pre-acquisition EBITDA based on actual pre-acquisition revenues. (b) The foregoing provisions shall not apply to: (i) the Incurrence by Holdings and its Subsidiaries of the Existing Indebtedness and the issuances by Holdings of Junior Preferred Stock and Senior Preferred Stock as contemplated by the Purchase Agreement; (ii) the Incurrence by (x) the Company and its Subsidiaries of the Indebtedness represented by the Company Notes and the Guarantees thereof or the Exchange Notes and the Exchange Guarantees (as defined in the Company Indenture) thereof, as the case may be, and (y) Holdings of the Indebtedness represented by the Notes (including any PIK Notes); (iii) the Incurrence by the Company or any of its Subsidiaries of (x) Indebtedness represented by Capitalized Lease Obligations, mortgage financings or purchase money Indebtedness, in each case, Incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Subsidiary, or (y) Acquired Indebtedness Incurred in connection with a Permitted Acquisition provided such Indebtedness was not Incurred in connection with or in contemplation of such Permitted Acquisition, in an aggregate principal amount not to exceed (without duplication) Page 38 $15,000,000 at any one time outstanding; provided that all or a portion of the Indebtedness permitted to be incurred under this clause (iii) may, at the option of the Company, without limitation as to purpose, be incurred under the Credit Agreement instead of pursuant to Capitalized Lease Obligations, mortgage financing or purchase money Indebtedness; (iv) the Incurrence by Holdings or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to extend, Refinance, renew, replace, defease or refund, Indebtedness that was permitted by this Indenture to be Incurred by Holdings or such Subsidiary; (v) the Incurrence by the Company or any of its Subsidiaries of intercompany Indebtedness between or among the Company and any Restricted Subsidiaries of the Company that (except for Permitted Partially Owned Subsidiaries) are Company Guarantors; provided, however, that (1) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company, a Restricted Subsidiary of the Company that (except for Permitted Partially Owned Subsidiaries) is a Company Guarantor, and (2) any sale or other transfer of any such Indebtedness to a Person other than the Company, a Restricted Subsidiary of the Company that (except for Permitted Partially Owned Subsidiaries) is a Company Guarantor, or a lender or agent upon exercise of remedies under a pledge of such Indebtedness under the Credit Documents, shall be deemed, in each case, to constitute an Incurrence of such Indebtedness by the Company or such Subsidiary, as the case may be; (vi) the Incurrence by the Company or any of its Subsidiaries of Interest Swap Obligations that are Incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding; (vii) the Incurrence by the Company and its Subsidiaries of Indebtedness evidenced by the Credit Documents (and the Guarantees thereof by Holdings and the Company's Subsidiaries) less the amount of all term loan repayments and permanent reductions actually made under the Credit Agreement with the Net Proceeds of an Asset Disposition applied thereto to the extent required by SECTION 5.05; provided that the amount of Indebtedness permitted to be Incurred pursuant to the Credit Agreement in accordance with this clause (vii) shall be in addition to any Indebtedness permitted to be incurred pursuant to the Credit Agreement in reliance on and in accordance with SECTION 5.04(A) above, with clause (iii) above and clause (xiv) below, and with clause (z) in the definition of Credit Agreement; (viii) The Incurrence by the Company or any of its Subsidiaries of Indebtedness under Currency Agreements; (ix) The Incurrence by Holdings or any of its Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, Page 39 draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the Ordinary Course of Business; (x) The Incurrence by the Company or any of its Subsidiaries of Indebtedness of the Company or any of its Subsidiaries represented by letters of credit for the account of the Company or such Subsidiary, as the case may be, in order to provide security for workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in the Ordinary Course of Business; (xi) Incurrence by Holdings of Earn-Out Obligations and of Indebtedness with respect to Seller Notes in an aggregate principal amount not to exceed $30,000,000 at any one time outstanding, provided all of such Seller Notes and Earn-Out Obligations (other than up to $7.5 million of such Earn-Out Obligations at any one time outstanding) are subordinated to Holdings' guarantee of Indebtedness under the Credit Agreement on terms no less favorable to the holders of such Indebtedness under the Credit Agreement than provided in Exhibit K to the Credit Agreement on the Closing Date; (xii) The Incurrence by Holdings or any of its Subsidiaries of Indebtedness in respect of performance bonds, bankers' acceptances, workers' compensation claims, surety or appeal bonds, payment obligations in connection with self-insurance or similar obligations Incurred in the Ordinary Course of Business; (xiii) the Guarantee by the Company or any of its Subsidiaries of Indebtedness of the Company or a Subsidiary of the Company that was permitted to be Incurred by another provision of this SECTION 5.04 and the Guarantee by Holdings of Indebtedness under the Credit Documents; (xiv) the Incurrence by the Company or any of its Subsidiaries of Indebtedness (in addition to Indebtedness permitted by any other clause of this paragraph) in an aggregate principal amount at any time outstanding not to exceed $15,000,000; PROVIDED that all or a portion of the Indebtedness permitted to be Incurred pursuant to this clause (xiv) may, at the option of the Company, be Incurred under the Credit Agreement; (xv) Indebtedness arising from agreements of the Company or a Subsidiary of the Company providing for indemnification, adjustment of purchase price or similar obligations, in each case, Incurred in connection with an Asset Disposition permitted by this Indenture or a Permitted Acquisition or other sale or disposition of assets permitted under this Indenture; (xvi) Indebtedness arising from agreements of Holdings or a Subsidiary of Holdings (including the Stockholders Agreement, the Exchange and Registration Rights Agreement, and similar contractual undertakings) providing for indemnification and payment of expenses relating to the registration under the Securities Act of the sale of Capital Stock of Holdings or the Notes or the Company Notes; Page 40 (xvii) the Incurrence by Holdings of Subordinated Indebtedness as a result of a repurchase from employees of Holdings and its Subsidiaries of Capital Stock of Holdings permitted by SECTION 5.02(B)(III) hereof; (xviii)the Incurrence by Holdings of Indebtedness constituting Restricted Payments to or Permitted Investments in Holdings permitted to be made hereunder by the Company and its Subsidiaries; (xix) the Incurrence of Indebtedness by Holdings as a result of its indemnification obligations permitted pursuant to SECTION 5.06(C) and SECTION 5.06(d); and (xx) Incurrence by the Company or any Subsidiaries of the Company of Indebtedness in connection with repurchases or redemptions of minority interests in Permitted Partially Owned Subsidiaries permitted by SECTION 5.02(B)(IV) hereof, in an aggregate principal amount at any time outstanding not to exceed $5,000,000. (c) For purposes of determining compliance with this SECTION 5.04, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Indebtedness described in clauses (i) through (xx) of the immediately preceding paragraph or is entitled to be Incurred pursuant to the Coverage Ratio Test set forth above, Holdings shall, in its sole discretion, classify (or later reclassify) such item of Indebtedness in any manner that complies with SECTION 5.04(B) and will only be required to include the amount and type of such Indebtedness in one of such clauses of SECTION 5.04(B) or pursuant to SECTION 5.04(A). Accrual of interest, accretion of accreted value, amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms as the Indebtedness on which such interest is being paid and any other issuance of securities paid-in-kind shall not be deemed to be an Incurrence of Indebtedness for purposes of SECTION 5.04. In addition, Holdings may, at any time, change the classification of an item of Indebtedness (or any portion thereof) to any other clause of SECTION 5.04(B) or to Indebtedness properly incurred under SECTION 5.04(A) PROVIDED that Holdings would be permitted to Incur such item of Indebtedness (or portion thereof) pursuant to such other clause of this SECTION 5.04(B) or SECTION 5.04(A), as the case may be, at such time of reclassification. SECTION 5.05. ASSET DISPOSITIONS. (a) Holdings shall not, and shall not permit any of its Subsidiaries to, consummate any Asset Disposition (PROVIDED that the sale, lease, conveyance or other disposition of all or substantially all of the assets of Holdings and its Subsidiaries taken as a whole shall be governed by the provisions of SECTION 4.03 and/or ARTICLE 6 and not by the provisions of this SECTION 5.05) unless all of the following conditions are met: (i) at any time prior to a Note Registration, the aggregate fair market value of assets (exclusive of (x) the Specified Assets, (y) any assets subject to a Sale and Leaseback Transaction permitted hereunder and (z) assets involuntarily disposed of in an insured loss or as a result of a condemnation proceeding) sold or otherwise disposed of in any fiscal year of Holdings does not exceed 20% of Consolidated Page 41 Tangible Assets at the beginning of the fiscal year; (ii) the consideration received is at least equal to the fair market value of such assets (except as the result of any foreclosure or sale by the lenders under the Credit Documents); (iii) at least 80% of the consideration received is cash; and (iv) no Default or Event of Default then exists or shall result from such Asset Disposition; PROVIDED, HOWEVER, that the amount of (x) any liabilities (as shown on Holdings' or such Subsidiary's most recent balance sheet) of Holdings or any Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes) that are assumed by the transferee of any such assets pursuant to any arrangement releasing Holdings or such Subsidiary from further liability and (y) any securities, notes or other obligations received by Holdings or any such Subsidiary from such transferee that are converted by Holdings or such Subsidiary into cash or Cash Equivalents within 90 days after the Asset Sale (to the extent of the cash received), shall be deemed to be cash for purposes of this provision. (b) Within 365 days after the receipt of any Net Proceeds from an Asset Disposition, Holdings or the Subsidiary making such Asset Disposition, as the case may be, may apply such Net Proceeds (i) to permanently reduce Senior Indebtedness or Guarantor Senior Indebtedness, or to purchase the Company Notes or the Notes (with the consent of the Holders thereof to the extent required) or Indebtedness ranking PARI PASSU with the Notes (and to correspondingly reduce commitments with respect thereto) or (ii) to the acquisition of a controlling interest in another business, the making of Capital Expenditures or the investment in or acquisition of other long-term assets, in each case, in the same or a similar line of business as Holdings and its Subsidiaries engaged in at the time such assets were sold or in a business reasonably related, complementing or ancillary thereto or a reasonable expansion thereof. Pending the final application of any such Net Proceeds, the Company may temporarily reduce revolving credit Indebtedness under the Credit Agreement or otherwise invest such Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph shall be deemed to constitute "EXCESS PROCEEDS." When the aggregate amount of Excess Proceeds exceeds in any fiscal year $5,000,000, Holdings shall make an Asset Sale Offer pursuant to SECTION 4.10 to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the outstanding principal amount thereof, plus accrued and unpaid interest, thereon to the date of purchase, in accordance with the procedures set forth in SECTION 4.10. To the extent that the aggregate principal amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, Holdings may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, Holdings shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. To the extent that the provisions of any securities laws or regulations conflict with the provision so of this Indenture relating to such Asset Sale Offer, Holdings shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in this Indenture by virtue thereof. Page 42 SECTION 5.06. TRANSACTIONS WITH AFFILIATES. Holdings will not and will not permit any of its Subsidiaries directly or indirectly to enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any management, consulting, investment banking, advisory or other similar services) with any Affiliate of Holdings or with any director, officer or employee of Holdings or any Subsidiary (each of the foregoing, an "AFFILIATE TRANSACTION"), except: (a) the performance of any of the Transaction Documents as in effect as of the date of this Indenture or the consummation of any transaction contemplated thereby (including pursuant to any amendment thereto so long as any such amendment is not disadvantageous to the Holders of the Notes in any material respect); (b) transactions (i) in the ordinary course of and pursuant to the reasonable requirements of the business of Holdings or any of its Subsidiaries and upon fair and reasonable terms which are not materially less favorable to Holdings or such Subsidiary than would be obtained in a comparable arm's length transaction with a Person that is not an Affiliate of Holdings and (ii) Holdings delivers to the Trustee (A) with respect to any Affiliate Transaction involving aggregate consideration in excess of $1,000,000, a resolution of the Board of Directors of Holdings set forth in an Officers' Certificate certifying that such Affiliate transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors of Holdings, and (B) with respect to any Affiliate Transaction or series of Affiliate Transactions involving in excess of $5,000,000, an opinion as to the fairness of such Affiliate Transaction to Holdings from a financial point of view issued by an investment banking firm of national standing; (c) payment of customary compensation to officers, employees, consultants and investment bankers for services actually rendered to Holdings or such Subsidiary, including indemnity; (d) payment of director's fees plus expenses and customary indemnification of directors; (e) payment of (i) fees and other expenses to Leonard Green & Partners, L.P. or other Affiliates of GEI pursuant to the Management Services Agreement (or any agreement extending or replacing the Management Services Agreement that contains the same terms with respect to fees and other terms no less favorable to Holdings and its Subsidiaries), not to exceed, in any Fiscal Year the sum of (x) 1.6% of capital invested in Holdings by Principals, (y) normal and customary fees for financial advice and investment banking services that may be undertaken on behalf of Holdings and the Company from time to time, and (z) reimbursement of out-of-pocket costs and expenses; and (ii) a one-time general services and structuring fee in connection with the closing of the transactions contemplated in the Merger Agreement; (f) the payment of the fees, expenses and other amounts payable by Holdings and its Subsidiaries in connection with the transactions contemplated by the Transaction Documents (including non-competition payments to be made to senior officers of Holdings or Page 43 the Company, disclosed to the Purchasers pursuant to the Purchase Agreement) that were disclosed to the Purchasers on or prior to the Closing Date; (g) transactions undertaken pursuant to the agreements set forth on SCHEDULE 5.06, copies of which shall have been provided to the Purchasers prior to the Closing Date; (h) Restricted Payments permitted by SECTION 5.03 and Permitted Investments; (i) the payment of Earn-Out Obligations and payment on Seller Notes pursuant to agreements entered into at such time as the recipient of such payments was not an Affiliate of Holdings or its Subsidiaries; (j) transactions between or among Holdings and/or its Subsidiaries; (k) sale of Capital Stock of Holdings to Affiliates of Holdings not otherwise prohibited by this Indenture and the redemption or repurchase of Capital Stock of Holdings from Affiliates who are Management Investors to the extent permitted by SECTION 5.02(B)(III), and the sale of Capital Stock of Subsidiaries to the extent that a Permitted Partially Owned Subsidiary results therefrom, and the redemption or repurchase from Affiliates of such Subsidiaries of minority interests in Permitted Partially Owned Subsidiaries; and (l) the issuance of payments, awards or grants, in cash or otherwise, pursuant to, or the funding of, employment arrangements approved by the Board of Directors of Holdings in good faith and customary loans and advances to employees of Holdings, or any Subsidiary of Holdings to the extent otherwise permitted in this Indenture. Notwithstanding the foregoing, unless otherwise approved by the Required Holders, no payments may be made with respect to the management fees and expenses described in SECTION 5.06(E)(I)(X) after the Required Holders have provided written notice to GEI of the occurrence and continuance of an Event of Default under SECTION 7.01(A), SECTION 7.01(B) or SECTION 7.01(G) or, prior to Note Registration, an Event of Default caused by the failure of Holdings to comply with the covenants and agreements set forth in Section 9 of the Purchase Agreement; PROVIDED such management fees may continue to accrue following such notice and be payable (notwithstanding any maximum amount of payments otherwise applicable to the Fiscal Year in which such deferred payment is actually made) once such Event of Default is cured, waived or rescinded. SECTION 5.07. LIMITATION ON LIENS. Holdings shall not directly or indirectly, create, incur, assume or suffer to exist any Lien on any asset now owned or hereafter acquired to secure any Indebtedness of Holdings, except for Liens securing the guaranty by Holdings of Indebtedness Incurred under the Credit Documents and Permitted Liens. SECTION 5.08. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF SUBSIDIARIES. Holdings shall not permit the Company or any Subsidiary of the Company to transfer, convey, sell, issue, lease or otherwise dispose of any Capital Stock of any Person (other than to the Company or another Subsidiary of the Company), unless (a) (i) such transfer, conveyance, sale, Page 44 lease or other disposition is of all the Capital Stock of such Subsidiary and (ii) the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with the provisions of SECTION 5.05, or (b) such transfer, conveyance, sale, issuance, lease or other disposition is to a licensed veterinarian (or professional corporation owned by a licensed veterinarian) in a transaction resulting in a Permitted Partially Owned Subsidiary; PROVIDED, HOWEVER, that this SECTION 5.08 shall not restrict any pledge of Capital Stock of the Company and its Subsidiaries securing Indebtedness under the Credit Documents. SECTION 5.09. SALES AND LEASEBACK TRANSACTIONS. Holdings shall not, and shall not permit any of its Subsidiaries to, enter into any Sale and Leaseback Transaction; PROVIDED, HOWEVER, that the Company and its Subsidiaries may (a) enter into a Sale Leaseback Transaction if (i) the Company or such Subsidiary could have (A) Incurred Indebtedness in an amount equal to the Attributable Debt relating to such Sale and Leaseback Transaction pursuant to SECTION 5.04 and (B) incurred a Lien to secure such Indebtedness pursuant to the provisions of SECTION 5.07, (ii) the gross cash proceeds of such Sale and Leaseback Transaction are at least equal to the fair market value (as determined in good faith by the Board of Directors) of the property that is the subject of such Sale and Leaseback Transaction and (iii) the transfer of assets in such Sale and Leaseback Transaction is permitted by, and the Company or such Subsidiary applies the proceeds of such transaction in compliance with, the provisions of SECTION 5.05; and (b) enter into a Sale and Leaseback Transactions which are in the ordinary course of the Company's or such Subsidiary's business consistent with past practice and at market rates with respect to equipment acquired by the Company and its Subsidiaries after the Closing Date if the proceeds of any such Sale Leaseback shall be entirely in cash and shall not be less than 100% of the fair market value of the equipment being sold (determined in good faith by the Company, provided that at the time of and immediately after giving effect to any such Sale and Leaseback Transaction, the aggregate fair market value of all equipment so sold or disposed of in connection with such Sale and Leaseback Transactions covered by this clause (b) shall not exceed an amount equal to $7,500,000. SECTION 5.10. CONDUCT OF BUSINESS. Holdings shall not and shall not permit any of its Subsidiaries directly or indirectly to engage in any business other than business of the type engaged in at the date hereof and any business reasonably related, complementing or ancillary thereto or a reasonable expansion thereof. ARTICLE 6. COVENANTS APPLICABLE TO HOLDINGS Notwithstanding anything in this Indenture to the contrary: SECTION 6.01. BUSINESS ACTIVITIES OF HOLDINGS. The sole business activities of Holdings will be (i) the direct ownership of all the outstanding shares of common stock of the Company and activities incidental thereto (including, without limitation, the payment of Taxes and the retention of accountants and auditors), (ii) the performance of obligations under the Transaction Document to which it is a party, (iii) the performance of obligations under Seller Page 45 Notes and Earn-Out Obligations, (iv) the issuance of Holdings' Capital Stock and activities incidental thereto, and (v) the making of Restricted Payments and Permitted Investments, and the incurrence of Indebtedness and Permitted Liens, in each case solely to the extent permitted by this Indenture. SECTION 6.02. MERGER, CONSOLIDATION, OR SALES OF ASSETS OF HOLDINGS. Holdings shall not consolidate or merge with or into (whether or not Holdings is the surviving corporation), or directly and/or indirectly through its Subsidiaries sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the properties and assets of Holdings and its Subsidiaries taken as a whole in one or more related transactions, to any other Person, unless: (a) the resulting, surviving or transferee Person (the "SUCCESSOR COMPANY") shall be a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not Holdings) shall expressly assume, by a supplemental indenture hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of Holdings under the Notes and this Indenture; (b) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Subsidiary as a result of such transaction as having been Incurred by the Successor Company or such Subsidiary at the time of such transaction), no Default shall have occurred and be continuing under this Indenture; (c) immediately after giving effect to such transaction, the Successor Company would be able to Incur an additional $1.00 of Indebtedness pursuant to the Coverage Ratio Test set forth in SECTION 5.04(A) of this Indenture if it were deemed to be the Company thereunder; (d) Holdings shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) are permitted by and comply with this Indenture; and (e) Holdings shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders will not recognize income, gain or loss for Federal income tax purposes as a result of such transaction and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such transaction had not occurred. The Successor Company shall succeed to, and be substituted for, and may exercise every right and power of, Holdings under this Indenture, but Holdings in the case of a conveyance, transfer or lease of all or substantially all its assets shall not be released from the obligation to pay the principal of and interest on the Notes. Page 46 ARTICLE 7. EVENTS OF DEFAULT; REMEDIES SECTION 7.01. EVENTS OF DEFAULT. An Event of Default shall exist upon the occurrence of any of the following specified events (each an "EVENT OF DEFAULT"): (a) Holdings defaults in the payment when due of interest, if any, on the Notes and such default continues for a period of either (i) ten (10) days prior to a Note Registration or (ii) thirty (30) days thereafter; (b) Holdings defaults in the payment when due of the principal amount of or premium, if any, on the Notes when the same becomes due and payable at its Maturity, upon redemption or otherwise; (c) Holdings fails to observe or perform any other covenant or other agreement in this Indenture, the Purchase Agreement or the Notes and such failure continues for a period of thirty (30) days after any senior officer of the Company has obtained actual knowledge of the same; (d) any representation, warranty, certification or statement made by Holdings in the Purchase Agreement and the related documents or in any statement or certificate at any time given by or on behalf of Holdings in writing pursuant to the Purchase Agreement or any other related documents shall be false in any material respect on the date as of which made; (e) a default occurs under any mortgage, indenture or agreement or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by Holdings or any of its Subsidiaries (or payment of which is Guaranteed by Holdings or any of its Subsidiaries), whether such Indebtedness or Guarantee now exists, or is created after the date of this Indenture (which default, other than in the case of Subordinated Indebtedness, (i) constitutes a failure to pay at final maturity (after giving effect to any applicable grace periods and any extensions thereof) the principal amount of such Indebtedness or (ii) shall have resulted in such Indebtedness being accelerated or otherwise become or being declared due and payable prior to its stated maturity), and the principal amount of all such Indebtedness as to which a default described in this paragraph (e) has occurred aggregates $7,500,000 or more; (f) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against Holdings or any of its Subsidiaries and such judgment or judgments remain unpaid and undischarged for a period (during which execution shall not be effectively stayed) of 60 days, and is not adequately covered by insurance or indemnities which have been cash collateralized, provided, however, that the aggregate amount of all such undischarged or uninsured judgments exceeds $7,500,000; (g) Holdings or any of its Subsidiaries: Page 47 (i) commences a voluntary case or proceeding, (ii) consents to the entry of a decree or order for relief against it in an involuntary case or proceeding or to the commencement of any case or proceeding against it, (iii) consents to the filing of a petition or to the appointment of or taking possession by a Custodian (as defined below) of it or for all or any substantial part of its property, (iv) makes or consents to the making of a general assignment for the benefit of its creditors, (v) generally is not paying, or admits in writing that it is not able to pay its debts as they become due, or (vi) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against Holdings or any of its Subsidiaries in an involuntary case or proceeding; (B) appoints a Custodian of Holdings or any of its Subsidiaries or for all or any substantial part of the property of Holdings or any of its Subsidiaries or approves as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of any of the foregoing; or (C) orders the winding up or liquidation of Holdings or any of its Subsidiaries or adjudges any of them as bankrupt or insolvent; and any such order or decree remains unstayed and in effect for sixty (60) consecutive days; provided, however, that, notwithstanding the foregoing, it shall not constitute an Event of Default hereunder if any of the circumstances described above in this Section 7.01(g) shall have occurred with respect to one or more Subsidiaries of the Company; provided, further, however, that such Subsidiary and all other similarly situated Subsidiaries shall not have accounted for more than ten percent (10%) of the Company's Consolidated EBITDA during the four-Fiscal Quarter period most recently ended. The term "CUSTODIAN" means any custodian, receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. SECTION 7.02. ACCELERATION. If an Event of Default (other than an Event of Default specified in SECTION 7.01(G) with respect to Holdings or the Company) occurs and is continuing, the Trustee by notice to Holdings or the Holders of (i) until a Note Registration, more than 50% Page 48 in principal amount of the Notes at the time outstanding, and (ii) thereafter, 25% or more in principal amount of the then outstanding Notes, may declare the principal of and accrued but unpaid interest and any Special Interest on all the Notes to be due and payable; provided that so long as the Credit Agreement shall be in force and effect, if an Event of Default (other than an Event of Default specified in Section 7.01(g)) occurs and is continuing, any such acceleration shall not be effective until the earlier to occur of (x) five (5) Business Days following the delivery of a notice of such acceleration to the Representative under the Credit Agreement and, if such acceleration is declared by the Holders, to the Trustee and (y) the acceleration of any Indebtedness under the Credit Agreement. Holdings shall give notice of any acceleration under clause (y) of the preceding sentence to the Holders and the Trustee promptly upon its becoming aware thereof. Upon such a declaration, such principal and interest will be due and payable immediately. If an Event of Default specified in SECTION 7.01(G) with respect to Holdings or the Company occurs, the principal of and interest on all the Notes shall IPSO FACTO become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. The Holders of a majority in principal amount at maturity of the outstanding Notes by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal of or interest on Notes that has become due solely because of acceleration. No such rescission shall affect any subsequent Default or impair any right consequent thereto. In the interest of clarity and for the avoidance of doubt, if an Event of Default under SECTION 7.01(E) shall have occurred, but the default thereunder shall have been cured or waived, or any acceleration thereunder shall have been rescinded, then such cure, waiver or rescission shall similarly and automatically apply to the Event of Default under SECTION 7.01(E) hereof. If an Event of Default has occurred and is continuing, the Notes will accrue interest at 2% per annum plus the stated interest rate on the Notes, until such time as no Event of Default shall be continuing (to the extent that the payment of such interest shall be legally enforceable). Holdings shall give prompt notice to the Trustee and the Holders of the occurrence of any Event of Default and the rescission, cure or waiver of any Event of Default. SECTION 7.03. OTHER REMEDIES. Notwithstanding any other provision of this Indenture, if an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of or interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding in its own name and as trustee of an express trust even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of Page 49 or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. SECTION 7.04. WAIVER OF PAST DEFAULTS. The Holders of a majority in principal amount at maturity of the Notes by notice to the Trustee may waive an existing Default and its consequences except (a) a Default in the payment of principal of or interest on a Note, (b) a Default arising from the failure to redeem or purchase any Note when required pursuant to the terms of this Indenture or (c) a Default in respect of a provision that under SECTION 10.02 cannot be amended without the consent of each Holder affected. When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right. SECTION 7.05. CONTROL BY MAJORITY. The Holders of a majority in principal amount of the outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or, subject to SECTION 8.01, that the Trustee determines is unduly prejudicial to the rights of other Holders or would involve the Trustee in personal liability; PROVIDED, HOWEVER, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. SECTION 7.06. LIMITATION ON SUITS. (a) Except to enforce the right to receive payment of principal of or interest on the Notes when due, no Holder may pursue any remedy with respect to this Indenture or the Notes unless: (i) the Holder has previously given to the Trustee written notice stating that an Event of Default has occurred and is continuing; (ii) the Holders of at least 25% in principal amount at maturity of the outstanding Notes make a written request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer to the Trustee reasonable security or indemnity against any loss, liability or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and (v) the Holders of a majority in principal amount at maturity of the outstanding Notes do not give the Trustee a direction inconsistent with the request during such 60-day period. (b) A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. Page 50 SECTION 7.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and any Special Interest and interest on the Notes held by such Holder, on or after the respective due dates expressed or provided for in the Notes, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder, it being understood that each Holder has consented to the subordination of any Special Mandatory Redemption as provided in SECTION 7.12. SECTION 7.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in SECTION 7.01(A) or (B) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against Holdings or any other obligor on the Notes for the whole amount then due and owing (together with interest on overdue portion of the principal amount and (to the extent lawful) on any unpaid interest at the rate provided for in the Notes) and the amounts provided for in SECTION 8.07. SECTION 7.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Holders allowed in any judicial proceedings relative to Holdings or any Subsidiary, their creditors or their property and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under SECTION 8.07. SECTION 7.10. PRIORITIES. If the Trustee collects any money or property pursuant to this ARTICLE 7, it shall pay out the money or property in the following order: FIRST: to the Trustee for amounts due under SECTION 8.07; SECOND: to Holders for amounts due and unpaid on the Notes for principal and interest, ratably, and any Special Interest without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, any Special Interest and interest, respectively; and THIRD: to Holdings. The Trustee may fix a record date and payment date for any payment to Holders pursuant to this SECTION 7.10. At least 15 days before such record date, the Trustee shall mail to each Holder and Holdings a notice that states the record date, the payment date and amount to be paid. Page 51 SECTION 7.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This SECTION 7.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to SECTION 7.07 or a suit by Holders of more than 10% in principal amount at maturity of the Notes. SECTION 7.12. SUBORDINATION OF SPECIAL MANDATORY REDEMPTION. (a) Until all Indebtedness under the Credit Documents has been finally paid in full, all commitments thereunder have been terminated and any contingent Indebtedness thereunder has been fully cash collateralized, any payment obligation or payment arising from or in respect of a Special Mandatory Redemption shall be made only to the extent that the making of such Special Mandatory Redemption has been approved in writing by the holders of the Indebtedness under the Credit Documents or their Representative, which approval may be granted or denied in the sole and absolute discretion of such holders or Representative, and which approval, if given, may be withdrawn by written notice to the Trustee at any time prior to the date specified for the Special Mandatory Redemption. Each Holder acknowledges by its acceptance of its Notes that any failure by the Company to make any Special Mandatory Redemption shall not result in the occurrence of a Default or an Event of Default, nor serve as a basis for exercise of remedies consequent upon a Default or Event of Default or otherwise, unless such holders of the Indebtedness under the Credit Agreement or such Representative has given (and not withdrawn) its prior written approval to the making of such Special Mandatory Redemption. Each Holder further agrees by its acceptance of its Notes that it will not take any action inconsistent with the rights of the holders of Indebtedness under the Credit Documents to receive payment in full of any amounts owing under the Credit Documents prior to the making of any Special Mandatory Redemption by the Company. The provisions of this SECTION 7.12 apply only to a Special Mandatory Redemption and shall not be construed to affect any other rights of the Holders under this Indenture. (b) No right of any present or future holder of Indebtedness under the Credit Documents to enforce the provisions of this SECTION 7.12 shall be impaired by any act or failure to act by the Company, the Trustee, any Holder or by the failure of any such holder of Indebtedness under the Credit Documents to give any notices or take any actions contemplated by this Indenture or otherwise. No provision of any waiver or supplemental indenture may affect in any way the rights of the holders of Indebtedness under the Credit Documents without the prior written consent of such holders or their Representative. (c) In the event that, notwithstanding the foregoing, the Holders of the Notes shall have received any Special Mandatory Redemption not permitted by this Section 7.12, then and in such event such Special Mandatory Redemption shall be paid over and delivered forthwith to the holders of Indebtedness under the Credit Agreement in the same form received and, until so turned over, the same shall be held in trust by the Trustee on behalf of the Holders, or by such Holders, as the collateral of the holders of Indebtedness under the Credit Documents. Only after Page 52 the payment in full in cash or Cash Equivalents of all amounts due or to become due on or in respect of Indebtedness under the Credit Documents and, unless the holders of Indebtedness under the Credit Documents shall have the ability to terminate such commitments, the termination of all commitments in respect thereof, the Holders of the Notes shall be subrogated to the rights of the Holders of Indebtedness under the Credit Documents to receive payments and distributions of cash, property and securities applicable to such Indebtedness until the amount of the Special Mandatory Redemption shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Indebtedness under the Credit Documents of any cash, property or securities to which the Holders of the Notes or the Trustee on their behalf would be entitled except for the provisions of this SECTION 7.12, and no payments pursuant to the provisions of this SECTION 7.12 to the holders of Indebtedness under the Credit Documents by Holders of the Notes or the Trustee on their behalf, shall, as among the Company, its creditors other than holders of Indebtedness under the Credit Documents and the Holders of the Notes, be deemed to be a payment or distribution by the Company to or on account of the Special Mandatory Redemption. Each Holder of a Note, by accepting such Note, acknowledges and agrees that the provisions of this SECTION 7.12 are, and are intended to be, an inducement and a consideration to each holder of any Indebtedness under the Credit Documents, whether such Indebtedness was created or acquired before or after the issuance of the Notes, to acquire and continue to hold, or to continue to hold, such Indebtedness, and such holder of such Indebtedness shall be deemed conclusively to have relied on such provisions in acquiring and continuing to hold, or in continuing to hold, such Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Indebtedness under the Credit Documents and shall not be liable to any such holders if it shall mistakenly pay over or distribute to Holders or the Company or any other Person, money or assets to which any holders of Indebtedness of the Company under the Credit Documents shall be entitled by virtue of this SECTION 7.12 or otherwise. The provisions of this SECTION 7.12 (including the defined terms used herein) are for the benefit of the holders of Indebtedness under the Credit Documents and shall be enforceable by them directly against any Holder and may not be amended without the consent of the Representative under the Credit Agreement or, in the absence thereof, the holders holding the majority in principal amount of such Indebtedness. ARTICLE 8. TRUSTEE SECTION 8.01. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and Page 53 (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) this paragraph does not limit the effect of SECTION 8.01(B); (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to SECTION 7.05. (iv) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to SECTIONS 8.01(A), 8.01(B) and 8.01(C). (e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with Holdings. (f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall extend to the Registrar, Notes Custodian, Paying Agent and an authenticating agent and be subject to the provisions of this SECTION 8.01 and to the provisions of the TIA. SECTION 8.02. RIGHTS OF TRUSTEE. (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers' Certificate or Opinion of Counsel. Page 54 (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; PROVIDED, HOWEVER, that the Trustee's conduct does not constitute willful misconduct or negligence. (e) The Trustee may consult with counsel, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Notes shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (f) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other paper or document or as to whether or not an Event of Default shall have occurred unless requested in writing to do so by the Holders of not less than a majority in principal amount at maturity of the Notes at the time outstanding, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of Holdings, personally or by agent or attorney. (g) The permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as a duty unless so specified herein. (h) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders, pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred therein or thereby. SECTION 8.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with Holdings or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with SECTIONS 8.10 and 8.11. SECTION 8.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity, priority or adequacy of this Indenture, or the Notes, it shall not be accountable for Holdings' use of the proceeds from the Notes, and it shall not be responsible for any statement of Holdings in this Indenture or in any document issued in connection with the sale of the Notes or in the Notes other than the Trustee's certificate of authentication. The Trustee shall not be responsible for any conduct or omission by Holdings or the occurrence of any Event of Default. Page 55 SECTION 8.05. NOTICE OF DEFAULTS. If a Default occurs and is continuing and if it is actually known to the Trustee, the Trustee shall mail to each Holder notice of the Default ("NOTICE OF DEFAULT") within 30 days after it is known to a trust officer or written notice of it is received by the Trustee. Except in the case of a Default in payment of principal of or interest on any Note (including payments pursuant to the mandatory redemption provisions of such Note, if any), the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of Holders. If a Notice of Default has been given to Holdings by the Holders, a copy of such Notice of Default shall be delivered by Holdings to the Trustee. Except as expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein, in any other Transaction Document or in any of the documents executed in connection with the Notes, or as to the existence of a Default or Event of Default hereunder or thereunder, and may assume that no such Default or Event of Default has occurred unless it has actual knowledge or received written notice thereof. SECTION 8.06. REPORTS BY TRUSTEE TO HOLDERS. As promptly as practicable after each year beginning with the year 2001 following the date of this Indenture, and in any event prior to February 1 in each year, the Trustee shall mail (if required by Section 313(a) of the TIA) to each Holder a brief report dated as of the preceding year that complies with Section 313(a) of the TIA. The Trustee shall also comply with Section 313(b) of the TIA. Following a Note Registration, a copy of each report at the time of its mailing to Holders shall be filed with the Commission and each stock exchange (if any) on which the Notes are listed. Holdings agrees to notify promptly the Trustee whenever the Notes become listed on any stock exchange and of any delisting thereof. SECTION 8.07. COMPENSATION AND INDEMNITY. Holdings shall pay to the Trustee from time to time reasonable and documented compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. Holdings shall reimburse the Trustee upon request for all reasonable and documented out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents, counsel, accountants and experts. Holdings shall indemnify the Trustee against any and all loss, liability or expense (including reasonable and documented attorneys' fees) incurred by or in connection with the administration of this trust and the performance of its duties hereunder. The Trustee shall notify Holdings of any claim for which it may seek indemnity promptly upon obtaining actual knowledge thereof; PROVIDED, HOWEVER, that any failure so to notify Holdings shall not relieve Holdings of its indemnity obligations hereunder. Holdings shall defend the claim and the indemnified party shall provide reasonable cooperation at Holdings' expense in the defense. Such indemnified parties may have separate counsel and Holdings shall pay the fees and expenses of such counsel; PROVIDED, HOWEVER, that Holdings shall not be required to pay such fees and expenses if it assumes such indemnified parties' defense and, in such indemnified parties' reasonable judgment, there is no conflict of interest between Holdings and such parties in connection with such defense. Holdings need not reimburse any expense or indemnify against any loss, liability Page 56 or expense incurred by an indemnified party through such party's own willful misconduct or negligence. To secure Holdings' payment obligations in this SECTION 8.07, the Trustee shall have a lien prior to the Notes on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of and interest and Special Interest, if any, on particular Notes. Holdings' obligations pursuant to this SECTION 8.07 shall survive the satisfaction or discharge of this Indenture, any rejection or termination of this Indenture under any bankruptcy law or the resignation or removal of the Trustee. Without prejudice to any other rights available to the Trustee under applicable law, when the Trustee incurs expenses after the occurrence of a Default specified in SECTION 7.01(G) with respect to Holdings or the Company, the expenses are intended to constitute expenses of administration under the Bankruptcy Law. All indemnifications and releases from liability granted hereunder to the Trustee shall extend to its officers, directors, employees, agents, successors and assigns. SECTION 8.08. REPLACEMENT OF TRUSTEE. (a) The Trustee may resign at any time by so notifying Holdings in writing in accordance with the provisions of SECTION 11.02. Any resignation of the Trustee shall be effective immediately upon receipt by Holdings of such notice (unless such notice shall specify a later time as the effective time of such resignation, in which case such later time shall be the effective time), and the resignation of the Trustee shall not prejudice any rights of the Trustee to receive any compensation, any reimbursement of any expenses or any indemnity or right to being defended and held harmless under this Indenture. The Holders of a majority in principal amount at maturity of the Notes may remove the Trustee by so notifying the Trustee and may appoint a successor Trustee. Holdings shall remove the Trustee if: (i) the Trustee fails to comply with SECTION 8.10; (ii) the Trustee is adjudged bankrupt or insolvent; (iii) a receiver or other public officer takes charge of the Trustee or its property; or (iv) the Trustee otherwise becomes incapable of acting. (b) If the Trustee resigns, is removed by Holdings or by the Holders of a majority in principal amount at maturity of the Notes and such Holders do not reasonably promptly appoint a successor Trustee, or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), Holdings shall promptly appoint a successor Trustee. (c) A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to Holdings. Thereupon the resignation or removal of the retiring Page 57 Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in SECTION 8.07. (d) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of 10% in principal amount at maturity of the Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. (e) If the Trustee fails to comply with SECTION 8.10, unless the Trustee's duty to resign is stayed as provided in TIA ss. 310(b), any Holder who has been a bona fide Holder of a Note for at least six months may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (f) Notwithstanding the replacement of the Trustee pursuant to this SECTION 8.08, Holdings' obligations under SECTION 8.07 shall continue for the benefit of the retiring Trustee. SECTION 8.09. SUCCESSOR TRUSTEE BY MERGER. If the Trustee consolidates with, merges or converts into, or transfers or sells all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. In case at the time such successor or successors by merger, conversion, sale or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Notes shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Notes or in this Indenture provided that the certificate of the Trustee shall have. SECTION 8.10. ELIGIBILITY; DISQUALIFICATION. The Trustee shall at all times satisfy the requirements of TIA ss. 310(a). The Trustee shall have, or in the case of a corporation included in a bank holding company system, the related bank holding company shall have, a combined capital and surplus of at least $100.0 million as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA ss. 310(b), subject to its right to apply for a stay of its duty to resign under the penultimate paragraph of TIA ss. 310(b); PROVIDED, HOWEVER, that there shall be excluded from the operation of TIA ss. 310(b)(1) any indenture or indentures under which other securities or certificates of interest or participation in other securities of Holdings are outstanding if the requirements for such exclusion set forth in TIA ss. 310(b)(1) are met. Page 58 SECTION 8.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST HOLDINGS. The Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated. ARTICLE 9. DISCHARGE OF INDENTURE; DEFEASANCE SECTION 9.01. DISCHARGE OF LIABILITY ON NOTES; DEFEASANCE. (a) When (i) all outstanding Notes (other than Notes replaced or paid pursuant to SECTION 2.07) have been canceled or delivered to the Trustee for cancellation or (ii) all outstanding Notes have become due and payable, whether at maturity or as a result of the mailing of a notice of redemption pursuant to ARTICLE 3 hereof, and Holdings irrevocably deposits with the Trustee funds in an amount sufficient, or U.S. Government Obligations, the principal of and interest on which will be sufficient, or a combination thereof sufficient, in the written opinion of a nationally recognized firm of independent public accountants delivered to the Trustee (which delivery shall only be required if U.S. Government Obligations have been so deposited), to pay the principal amount of and interest on the outstanding Notes when due at maturity or upon redemption of all outstanding Notes, including interest thereon to maturity or such Redemption Date (other than Notes replaced or paid pursuant to SECTION 2.07), and Special Interest, if any, and if in either case Holdings pays all other sums payable hereunder by Holdings, then this Indenture shall, subject to SECTION 9.01(C), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of Holdings accompanied by an Officers' Certificate and an Opinion of Counsel and at the cost and expense of Holdings. (b) Subject to SECTIONS 9.01(C) and 9.02, Holdings at any time may terminate (i) all of its obligations under the Notes and this Indenture ("LEGAL DEFEASANCE OPTION") or (ii) its obligations under SECTIONS 5.02, 5.03, 5.04, 5.05, 5.06, 5.07, 5.08, 5.09, 5.10 and 6.01, and the operation of 7.01(C), 7.01(D), 7.01(E), 7.01(F) and 7.01(G) ("COVENANT DEFEASANCE OPTION"). Holdings may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If Holdings exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default. If Holdings exercises its covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in SECTION 7.01(C), 7.01(D), 7.01(E), 7.01(F) or 7.01(G). Upon satisfaction of the conditions set forth herein and upon request of Holdings, the Trustee shall acknowledge in writing the discharge of those obligations that Holdings terminates. (c) Notwithstanding clauses (a) and (b) above, Holdings' obligations in SECTIONS 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 8.07, 8.08 and in this ARTICLE 9 shall survive until the Page 59 Notes have been paid in full. Thereafter, Holdings' obligations in SECTIONS 8.07, 9.04 and 9.05 shall survive. SECTION 9.02. CONDITIONS TO DEFEASANCE. (a) Holdings may exercise its legal defeasance option or its covenant defeasance option only if: (i) Holdings irrevocably deposits in trust with the Trustee money in an amount sufficient, or U.S. Government Obligations the principal of and interest on which will be sufficient, or a combination thereof sufficient, to pay the principal of and interest on the Notes when due at maturity or redemption, as the case may be, including interest thereon to maturity or such Redemption Date and Special Interest, if any; (ii) Holdings delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal and interest when due on all the Notes to maturity or redemption, as the case may be; (iii) the Company shall have delivered to the Trustee an opinion of counsel to the effect that on the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (iv) Holdings delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940; (v) in the case of the legal defeasance option, Holdings shall have delivered to the Trustee an Opinion of Counsel stating that (1) Holdings has received from, or there has been published by, the Internal Revenue Service a ruling, or (2) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; (vi) in the case of the covenant defeasance option, Holdings shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; and Page 60 (vii) Holdings delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Notes as contemplated by this ARTICLE 9 have been complied with. (b) Before or after a deposit, Holdings may make arrangements satisfactory to the Trustee for the redemption of Notes at a future date in accordance with ARTICLE 3. SECTION 9.03. APPLICATION OF TRUST MONEY. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this ARTICLE 9. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the Notes. SECTION 9.04. REPAYMENT TO HOLDINGS. The Trustee and the Paying Agent shall promptly turn over to Holdings upon request any money or U.S. Government Obligations held by it as provided in this ARTICLE 9 which, in the written opinion of a nationally recognized firm of independent public accountants delivered to the Trustee (which delivery shall only be required if U.S. Government Obligations have been so deposited), are in excess of the amount thereof which would then be required to be deposited to effect an equivalent discharge or defeasance in accordance with this ARTICLE 9. If money for the payment of principal of or interest on the Notes has been deposited with the Trustee or Paying Agent and remains unclaimed for two years after such amount is due and payable, the Trustee or Paying Agent shall pay the money back to Holdings at its written request unless an abandoned property law designates another Person. After any such payment, the Trustee and the Paying Agent shall have no further liability for such funds and Holders entitled to the money must look only to the recipient and not to the Trustee for payment. SECTION 9.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS. Holdings shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations. SECTION 9.06. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this ARTICLE 9 by reason of any legal proceeding or by reason of any order or judgment of any court or Governmental Authority enjoining, restraining or otherwise prohibiting such application, Holdings' obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to this ARTICLE 9 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this ARTICLE 9; PROVIDED, HOWEVER, that, if Holdings has made any payment of interest on principal of any Notes because of the reinstatement of its obligations, Holdings shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. Page 61 ARTICLE 10. AMENDMENTS SECTION 10.01. WITHOUT CONSENT OF HOLDERS. (a) Holdings and the Trustee may amend this Indenture or the Notes without notice to or consent of any Holder: (i) to cure any ambiguity, omission, defect or inconsistency; (ii) to provide for uncertificated Notes in addition to or in place of certificated Notes; PROVIDED, HOWEVER, that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code; (iii) to Guarantee the Notes; (iv) to secure the Notes; (v) to add to the covenants of Holdings for the benefit of the Holders or to surrender any right or power herein conferred upon Holdings; (vi) to comply with any requirement of the Commission in connection with qualifying, or maintaining the qualification of, this Indenture under the TIA; (vii) to make any change that does not adversely affect the rights of any Holder; (viii) to provide for the issuance of the Exchange Notes, which shall have terms substantially identical in all material respects to the Initial Notes (except that the transfer restrictions contained in the Initial Notes shall be modified or eliminated, as appropriate), and which shall be treated, together with any Initial Notes and any PIK Notes issued on the Initial Notes or the Exchange Notes that remain outstanding, as a single issue of securities; or (ix) to change the name or title of the Notes, and any conforming changes related thereto. (b) After an amendment under this SECTION 10.01 becomes effective, Holdings shall mail to Holders a notice briefly describing such amendment. The failure to give such notice to all Holders, or any defect therein, shall not impair or affect the validity of an amendment under this SECTION 10.01. SECTION 10.02. WITH CONSENT OF HOLDERS. (a) Holdings and the Trustee may amend this Indenture or the Notes without notice to any Holder but with the written consent of the Page 62 Holders of at least a majority in principal amount at maturity of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange for the Notes). However, without the consent of each Holder affected, an amendment may not: (i) reduce the principal amount of Notes whose Holders must consent to an amendment; (ii) reduce the rate of or extend the time for payment of interest or any Special Interest on any Note; (iii) reduce the principal amount of or extend the Stated Maturity of any Note; (iv) reduce the premium payable upon the redemption of any Note or change the time at which any Note may be redeemed in accordance with ARTICLE 3; (v) make any Note payable in money other than that stated in the Note; (vi) impair the right of any holder to receive payment of principal of and interest or any Special Interest on such Holder's Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holder's Notes; or (vii) make any change in SECTION 7.04 or 7.07 or the second sentence of this SECTION 10.02. It shall not be necessary for the consent of the Holders under this SECTION 10.02 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. (b) After an amendment under this SECTION 10.02 becomes effective, Holdings shall mail to Holders a notice briefly describing such amendment. The failure to give such notice to all Holders, or any defect therein, shall not impair or affect the validity of an amendment under this SECTION 10.02. SECTION 10.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment to this Indenture or the Notes shall comply with the TIA as then in effect. SECTION 10.04. REVOCATION AND EFFECT OF CONSENTS AND WAIVERS. (a) A consent to an amendment or a waiver by a Holder of a Note shall bind the Holder and every subsequent Holder of that Note or portion of the Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent or waiver is not made on the Note. However, any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder's Note or portion of the Note if the Trustee receives the notice of revocation before the date on which the Trustee receives an Officers' Certificate from Holdings certifying that the requisite number of consents have been received. After an amendment or waiver becomes effective, it shall bind Page 63 every Holder. An amendment or waiver becomes effective upon the (i) receipt by Holdings or the Trustee of the requisite number of consents, (ii) satisfaction of conditions to effectiveness as set forth in this Indenture and any indenture supplemental hereto containing such amendment or waiver and (iii) execution of such amendment or waiver (or supplemental indenture) by Holdings and the Trustee. (b) Holdings may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date. SECTION 10.05. NOTATION ON OR EXCHANGE OF NOTES. If an amendment changes the terms of a Note, the Trustee may require the Holder of the Note to deliver it to the Trustee. The Trustee may place an appropriate notation on the Note regarding the changed terms and return it to the Holder. Alternatively, if Holdings or the Trustee so determines, Holdings in exchange for the Note shall issue and the Trustee shall authenticate a new Note that reflects the changed terms. Failure to make the appropriate notation or to issue a new Note shall not affect the validity of such amendment. SECTION 10.06. TRUSTEE TO SIGN AMENDMENTS. The Trustee shall sign any amendment authorized pursuant to this ARTICLE 10 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and to receive, and (subject to SECTION 8.01) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture and that such amendment is the legal, valid and binding obligation of Holdings enforceable against it in accordance with its terms, subject to customary exceptions, and complies with the provisions hereof (including SECTION 10.03). ARTICLE 11. MISCELLANEOUS SECTION 11.01. TRUST INDENTURE ACT CONTROLS. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with the duties imposed by, or with another provision (an "incorporated provision") included in this Indenture by operation of TIA ss.ss. 310 to 318, inclusive, such imposed duties or incorporated provision shall control. SECTION 11.02. NOTICES. Any notice or communication shall be in writing and delivered in person, mailed by first-class mail addressed as follows or transmitted via telecopy (or other facsimile device) with receipt confirmed as set forth below: Page 64 if to Holdings: Veterinary Centers of America, Inc. 12401 West Olympic Boulevard Los Angeles, California 90064-1022 Attention: Thomas Fuller (telecopier no.: (310) 584-6704) with copies to: Leonard Green & Partners, L.P. 11111 Santa Monica Blvd. Los Angeles, California 90025 Attention: John G. Danhakl (telecopier no.: (310) 954-0404) and Irell & Manella LLP 1800 Avenue of the Stars, Suite 900 Los Angeles, California 90067 Attention: J. Christopher Kennedy (telecopier no.: (310) 203-7199) if to the Trustee: Chase Manhattan Bank and Trust Company, National Association 101 California Street, Suite 2725 San Francisco, California 94111 Attention: James Nagy (telecopier no.: (415) 693-8850) Holdings or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Holder shall be mailed , first class mail, to the Holder at the Holder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. Page 65 SECTION 11.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. Holders may communicate pursuant to TIA ss. 312(b) with other Holders with respect to their rights under this Indenture or the Notes. Holdings, the Trustee, the Registrar and anyone else shall have the protection of TIA ss. 312(c). SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by Holdings to the Trustee to take or refrain from taking any action under this Indenture, Holdings shall furnish to the Trustee: (a) an Officers' Certificate in form reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel in form reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture (other than pursuant to SECTION 4.05) shall include: (a) a statement that the individual making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with. SECTION 11.06. WHEN NOTES DISREGARDED. In determining whether the Holders of the required principal amount at maturity of Notes have concurred in any direction, waiver or consent, Notes owned by Holdings, any Subsidiary or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with Holdings or any Subsidiary shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes which the Trustee knows are so owned shall be so disregarded. Subject to the foregoing, only Notes outstanding at the time shall be considered in any such determination. Page 66 SECTION 11.07. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR. The Trustee may make reasonable rules for action by or a meeting of Holders. The Registrar and the Paying Agent may make reasonable rules for their functions. SECTION 11.08. LEGAL HOLIDAYS. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If a Regular Record Date is a Legal Holiday, the record date shall not be affected. SECTION 11.09. GOVERNING LAW. THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. SECTION 11.10. NO RECOURSE AGAINST OTHERS. A director, officer, employee, stockholder or member, as such, of Holdings or any of the Subsidiaries shall not have any liability for any obligations of Holdings or any of the Subsidiaries under the Notes or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Note, each Holder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Notes. SECTION 11.11. SUCCESSORS. All agreements of Holdings and each Subsidiary in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 11.12. MULTIPLE ORIGINALS; COUNTERPARTS. The parties may sign any number of counterparts of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture. SECTION 11.13. TABLE OF CONTENTS; HEADINGS. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. SECTION 11.14. INCORPORATION. All Exhibits and Schedules attached hereto are incorporated as part of this Indenture as if fully set forth herein. SECTION 11.15. INTENT TO LIMIT INTEREST TO MAXIMUM. In no event shall the interest rate payable on the Notes under this Indenture, plus any other amounts paid by Holdings to the Holders in connection therewith, exceed the highest rate permissible under law that a court of competent jurisdiction shall, in the final determination, deem applicable. Holdings and the Trustee, in executing and delivering this Indenture, intend legally to agree upon the rate or rates of interest and the manner of payment stated within it; PROVIDED, HOWEVER, that, anything Page 67 contained herein to the contrary notwithstanding, if said rate or rates of interest or manner of payment exceed the maximum allowable under applicable law, then, IPSO FACTO as of the date of this Indenture, Holdings is and shall be liable only for the payment of such maximum as allowed by law, and payment received from Holdings in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of any Notes then outstanding to the extent of such excess, or, if such excess exceeds the then outstanding principal, such excess shall be first set-off against any other amounts then due and owing by Holdings and refunded to Holdings. Page 68 IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. VETERINARY CENTERS OF AMERICA, INC. By: /S/ ROBERT L. ANTIN -------------------------------------------- Name: Robert L. Antin Title: CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION By: /S/ JAMES NAGY -------------------------------------------- Name: James Nagy Title: Assistant Vice President Page 69 APPENDIX A PROVISIONS RELATING TO INITIAL NOTES AND EXCHANGE NOTES 1. DEFINITIONS 1.1 DEFINITIONS For the purposes of this Appendix A, except where the context otherwise requires, ther terms "Initial Notes" and "Exchange Notes" shall include any PIK Notes issued thereon and the following terms shall have the meanings indicated below: "EXCHANGE AND REGISTRATION RIGHTS AGREEMENT" means the Exchange and Registration Rights Agreement, dated as of September 20, 2000, by and among Holdings and the Purchasers. "DEFINITIVE NOTE" means a certificated Initial Note or Exchange Note (bearing the Restricted Notes Legend if the transfer of such Note is restricted by Applicable Law) that does not include the Global Notes Legend. "DEPOSITARY" means The Depository Trust Company, its nominees and their respective successors. "GLOBAL NOTES LEGEND" means the legend set forth under that caption in Exhibit B to this Indenture. "INSTITUTIONAL ACCREDITED INVESTOR" means an institutional "accredited investor" as described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "NOTES" under the Indenture include the Initial Notes and any Exchange Notes issued in exchange for Initial Notes. "NOTES CUSTODIAN," who shall initially be the Trustee, means the custodian with respect to a Global Exchange Note (as appointed by the Depositary) or any successor person thereto. "PURCHASE AGREEMENT" means the Purchase Agreement, dated as of September 20, 2000, by and among Holdings and the Purchasers. "PURCHASERS" means GS Mezzanine Partners II, L.P., a Delaware limited partnership, GS Mezzanine Partners II Offshore, L.P., an exempted limited partnership organized Page 1 under the laws of the Cayman Islands, TCW Leveraged Income Trust, L.P., a Delaware limited partnership, TCW Leveraged Income Trust II, L.P., a Delaware limited partnership, TCW Leveraged Income Trust IV, L.P., a Delaware limited partnership, TCW/Crescent Mezzanine Partners II, L.P., a Delaware limited partnership, TCW/Crescent Mezzanine Trust II, a closed-end Delaware statutory business trust, and The Northwestern Mutual Life Insurance Company, a Wisconsin corporation. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "REGISTERED EXCHANGE OFFER" means the offer by Holdings, pursuant to the Exchange and Registration Rights Agreement, to certain Holders of Initial Notes, to issue and deliver to such Holders, in exchange for their Initial Notes, a like aggregate principal amount at maturity of Exchange Notes registered under the Securities Act. "REGULATION S" means Regulation S under the Securities Act. "RESTRICTED NOTES LEGEND" means the legend set forth in PARAGRAPH 2.3(D)(I) herein. "RULE 501" means Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "RULE 144A" means Rule 144A under the Securities Act. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHELF REGISTRATION STATEMENT" means a registration statement filed by Holdings in connection with the offer and sale of Initial Notes pursuant to the Exchange and Registration Rights Agreement. "TRANSFER RESTRICTED NOTES" means Definitive Notes and any other Notes that bear or are required to bear the Restricted Notes Legend. 1.2 OTHER DEFINITIONS TERM: DEFINED IN SECTION: ---- ------------------ "AGENT MEMBERS 2.1(c) "INITIAL DEFINITIVE NOTES" 2.1(b) "GLOBAL EXCHANGE NOTE" 2.1(b) 2. THE NOTES 2.1 FORM AND DATING Page 2 (a) The Initial Notes issued on the date hereof will be sold by Holdings pursuant to the Purchase Agreement to the Purchasers. Such Initial Notes may thereafter be transferred to, among others, QIBs, purchasers in reliance on Regulation S and, except as set forth below, Institutional Accredited Investors in accordance with Rule 501. (b) The Initial Notes shall be issued in the form of Definitive Notes, in fully registered form (the "INITIAL DEFINITIVE NOTES") bearing the Restricted Notes Legend and shall be issued to and registered in the name of the applicable Purchaser and duly executed by Holdings and authenticated by the Trustee as provided in this Indenture. Initial Notes will be exchanged for Exchange Notes in the Registered Exchange Offer pursuant to the Exchange and Registration Rights Agreement. Exchange Notes will also be issued upon the sale of Initial Notes (i) under a Shelf Registration Statement or (ii) at any time that the Initial Notes being sold are not Transfer Restricted Notes. Exchange Notes shall, except as provided in SECTIONS 2.3 and 2.4, be issued in global form bearing the Global Notes Legend (the "GLOBAL EXCHANGE NOTES"). The aggregate principal amount at maturity of the Global Exchange Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee and on the schedules thereto as hereinafter provided. (c) BOOK-ENTRY PROVISIONS. This PARAGRAPH 2.1(C) shall apply only to a Global Exchange Note deposited with or on behalf of the Depositary. Holdings shall execute and the Trustee shall, in accordance with this PARAGRAPH 2.1(C) and PARAGRAPH 2.2 and pursuant to an order of Holdings signed by one officer, authenticate and deliver one Global Exchange Note that (i) shall be registered in the name of the Depositary for such Global Exchange Note or the nominee of such Depositary and (ii) shall be delivered by the Trustee to such Depositary or pursuant to such Depositary's instructions or held by the Trustee as Notes Custodian. Members of, or participants in, the Depositary ("AGENT MEMBERS") shall have no rights under this Indenture with respect to any Global Exchange Note held on their behalf by the Depositary or by the Trustee as Notes Custodian or under such Global Exchange Note, and the Depositary may be treated by Holdings, the Trustee and any agent of Holdings or the Trustee as the absolute owner of such Global Exchange Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent Holdings, the Trustee or any agent of Holdings or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of such Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global Exchange Note. (d) DEFINITIVE NOTES. Except as provided in PARAGRAPH 2.3 or 2.4, owners of beneficial interests in Global Exchange Notes will not be entitled to receive physical delivery of certificated Notes. Page 3 2.2 AUTHENTICATION. The Trustee shall authenticate and make available for delivery upon a written order of Holdings signed by one officer (a) Initial Definitive Notes for original issue on the date hereof in an aggregate principal amount of $100,000,000, (b) subject to the terms of this Indenture, Exchange Notes in the form of Global Exchange Notes for issue in a Registered Exchange Offer pursuant to the Exchange and Registration Rights Agreement in a like principal amount at maturity of the Initial Notes exchanged pursuant thereto, (c) subject to the terms of this Indenture, Exchange Notes in the form of Global Exchange Notes in lieu of Initial Notes upon the sale of such Initial Notes (i) under a Shelf Registration Statement or (ii) at any time that such Initial Notes being sold are not Transfer Restricted Notes, (d) subject to the terms of this Indenture, Definitive Notes upon presentation to the Trustee of Initial Notes that are not required to bear the Restricted Notes Legend, and (e) upon election of Holdings in writing, PIK Notes in payment of interest on any other Notes (such written election to be provided to the Trustee at least 3 Business Days prior to the Interest Payment Date on which PIK Notes will be issued). Such order shall specify the amount of the Notes to be authenticated, the date on which the original issue of Notes is to be authenticated and whether the Notes are to be Initial Notes or Exchange Notes. The aggregate principal amount at maturity of the Initial Notes and the Exchange Notes outstanding at any time may not exceed $100,000,000, plus the amount of any PIK Notes, except as provided in SECTIONS 2.07 and 2.08 of this Indenture. 2.3 TRANSFER AND EXCHANGE. (a) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES. When Definitive Notes are presented to the Registrar with a request: (i) to register the transfer of such Definitive Notes; or (ii) to exchange such Definitive Notes for an equal principal amount at maturity of Definitive Notes of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; PROVIDED, HOWEVER, that the Definitive Notes surrendered for transfer or exchange: (1) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to Holdings and the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and (2) in the case of Transfer Restricted Notes are accompanied by the following additional information and documents, as applicable: (A) if such Definitive Notes are being delivered to the Registrar by a Holder for registration in the name of such Holder, without Page 4 transfer, a certification from such Holder to that effect (in the form set forth on the reverse side of the Initial Note); or (B) if such Definitive Notes are being transferred to Holdings, a certification to that effect (in the form set forth on the reverse side of the Initial Note); or (C) if such Definitive Notes are being transferred pursuant to an exemption from registration in accordance with Rule 144 under the Securities Act or in reliance upon another exemption from the registration requirements of the Securities Act, (x) a certification to that effect (in the form set forth on the reverse side of the Initial Note) and (y) if Holdings, the Registrar or the Trustee so requests, an opinion of counsel or other evidence reasonably satisfactory to it as to the compliance with the restrictions set forth in the legend set forth in PARAGRAPH 2.3(D)(I). (b) RESTRICTIONS ON TRANSFER OF A DEFINITIVE NOTE FOR A BENEFICIAL INTEREST IN A GLOBAL EXCHANGE NOTE. A Definitive Note may not be exchanged for a beneficial interest in a Global Exchange Note except (i) as part of a Registered Exchange Offer, (ii) upon sale of the Definitive Note under the Shelf Registration Statement, (iii) upon sale of the Definitive Note at the time such Definitive Note is not a Transfer Restricted Note or (iv) upon presentation to the Trustee of Definitive Notes that are not Transfer Restricted Notes. Upon receipt by the Trustee of a Definitive Note, duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to Holdings and the Registrar, together with written instructions directing the Trustee to make, or to direct the Notes Custodian to make, an adjustment on its books and records with respect to such Global Exchange Note to reflect an increase in the aggregate principal amount at maturity of the Notes represented by the Global Exchange Note, such instructions to contain information regarding the Depositary account to be credited with such increase, then the Trustee shall cancel such Definitive Note and cause, or direct the Notes Custodian to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Notes Custodian, the aggregate principal amount at maturity of Notes represented by the Global Exchange Note to be increased by the aggregate principal amount at maturity of the Definitive Note to be exchanged and shall credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Global Exchange Note equal to the principal amount at maturity of the Definitive Note so canceled. If no Global Exchange Notes are then outstanding and the Global Exchange Note has not been previously exchanged for certificated Notes pursuant to PARAGRAPH 2.4, Holdings shall issue and the Trustee shall authenticate, upon written order of Holdings in the form of an Officers' Certificate, a new Global Exchange Note in the appropriate principal amount at maturity. (c) TRANSFER AND EXCHANGE OF GLOBAL EXCHANGE NOTES. (i) The transfer of the Global Exchange Note or beneficial interests therein shall be effected through the Depositary, in accordance with this Indenture and the procedures of the Depositary therefor. A transferor of a beneficial interest in a Global Exchange Note shall deliver a written order given in accordance Page 5 with the Depositary's procedures containing information regarding the participant account of the Depositary to be credited with a beneficial interest in such Global Exchange Note and such account shall be credited in accordance with such order with a beneficial interest in the applicable Global Exchange Note and the account of the Person making the transfer shall be debited by an amount equal to the beneficial interest in the Global Exchange Note being transferred. (ii) Notwithstanding any other provisions of this Appendix (other than the provisions set forth in PARAGRAPH 2.4), a Global Exchange Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. (d) LEGEND. (i) Except as permitted by the following clauses (ii), (iii) or (iv), each Definitive Note (and all Notes issued in exchange therefor or in substitution thereof) shall bear a legend in substantially the following form (each defined term in the legend being defined as such for purposes of the legend only): THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH HOLDINGS OR ANY AFFILIATE OF HOLDINGS WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF SUCH NOTE), ONLY (A) TO HOLDINGS, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL Page 6 BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS AN INSTITUTIONAL ACCREDITED INVESTOR ACQUIRING THE NOTE FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT AT MATURITY OF THE NOTES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO HOLDINGS' AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. Each Definitive Note shall bear the following additional legend: IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. (ii) Upon any sale or transfer of a Transfer Restricted Note that is a Definitive Note, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Note for a Definitive Note that does not bear the legends set forth above and rescind any restriction on the transfer of such Transfer Restricted Note if the Holder certifies in writing to the Registrar that its request for such exchange was made in reliance on Rule 144 (such certification to be in the form set forth on the reverse of the Initial Note). (iii) After a transfer of any Initial Notes during the period of the effectiveness and pursuant to a Shelf Registration Statement with respect to such Initial Notes, all requirements pertaining to the Restricted Notes Legend on such Initial Notes shall cease to apply and the requirements that any such Initial Notes be issued in global form shall become applicable. Page 7 (iv) Upon the consummation of a Registered Exchange Offer with respect to the Initial Notes pursuant to which Holders of such Initial Notes are offered Exchange Notes in exchange for their Initial Notes, Exchange Notes in global form without the Restricted Notes Legend shall be available to Holders that exchange such Initial Notes in such Registered Exchange Offer. (e) CANCELLATION OR ADJUSTMENT OF GLOBAL EXCHANGE NOTE. At such time as all beneficial interests in a Global Exchange Note have either been exchanged for Definitive Notes, transferred, redeemed, repurchased or canceled, such Global Exchange Note shall be returned by the Depositary to the Trustee for cancellation or retained and canceled by the Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Exchange Note is exchanged for Definitive Notes, transferred in exchange for an interest in another Global Exchange Note, redeemed, repurchased or canceled, the principal amount at maturity of Notes represented by such Global Exchange Note shall be reduced and an adjustment shall be made on the books and records of the Trustee (if it is then the Notes Custodian for such Global Exchange Note) with respect to such Global Exchange Note, by the Trustee or the Notes Custodian, to reflect such reduction. (f) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF NOTES. (i) To permit registrations of transfers and exchanges, Holdings shall execute and the Trustee shall authenticate, Definitive Notes and Global Exchange Notes at the Registrar's request. (ii) No service charge shall be made for any registration of transfer or exchange, but Holdings or the Trustee may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charge payable upon exchanges pursuant to SECTIONS 2.06, 3.06, 4.09, 4.10 and 10.05 of this Indenture). (iii) Prior to the due presentation for registration of transfer of any Note, Holdings, the Trustee, the Paying Agent or the Registrar may deem and treat the person in whose name a Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on and Special Interest, if any, with respect to such Note and for all other purposes whatsoever, whether or not such Note is overdue, and none of Holdings, the Trustee, the Paying Agent or the Registrar shall be affected by notice to the contrary. (iv) All Notes issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Notes surrendered upon such transfer or exchange. Page 8 (g) NO OBLIGATION OF THE TRUSTEE. (i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Exchange Note, a member of, or a participant in the Depositary or any other Person with respect to the accuracy of the records of the Depositary or its nominee or of any participant or member thereof, with respect to any ownership interest in the Notes or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depositary) of any notice (including any notice of redemption or repurchase) or the payment of any amount, under or with respect to such Notes. All notices and communications to be given to the Holders and all payments to be made to Holders under the Notes shall be given or made only to the registered Holders (which shall be the Depositary or its nominee in the case of a Global Exchange Note). The rights of beneficial owners in any Global Exchange Note shall be exercised only through the Depositary subject to the applicable rules and procedures of the Depositary. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depositary with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among Depositary participants, members or beneficial owners in any Global Exchange Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. 2.4 DEFINITIVE NOTES (a) A Global Exchange Note deposited with the Depositary or with the Trustee as Notes Custodian pursuant to PARAGRAPH 2.1 or issued in connection with a Registered Exchange Offer shall be transferred to the beneficial owners thereof in the form of Definitive Notes in an aggregate principal amount at maturity equal to the principal amount at maturity of such Global Exchange Note, in exchange for such Global Exchange Note, only if such transfer complies with PARAGRAPH 2.3 and (i) the Depositary notifies Holdings that it is unwilling or unable to continue as a Depositary for such Global Exchange Note or if at any time the Depositary ceases to be a "clearing agency" registered under the Exchange Act, and a successor depositary is not appointed by Holdings within 90 days of such notice or after Holdings becomes aware of such cessation, or (ii) an Event of Default has occurred and is continuing or (iii) Holdings, in its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of certificated Notes under this Indenture. (b) Any Global Exchange Note that is transferable to the beneficial owners thereof pursuant to this PARAGRAPH 2.4 shall be surrendered by the Depositary to the Trustee, to be so transferred, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Exchange Note, an Page 9 equal aggregate principal amount at maturity of Definitive Notes of authorized denominations. Any portion of a Global Exchange Note transferred pursuant to this paragraph shall be executed, authenticated and delivered only in denominations of $1,000 (in principal amount at maturity) and any multiple thereof and registered in such names as the Depositary shall direct. Any certificated Initial Note in the form of a Definitive Note delivered in exchange for an interest in the Global Exchange Note shall, except as otherwise provided by PARAGRAPH 2.3(D), bear the Restricted Notes Legend. (c) Subject to the provisions of PARAGRAPH 2.4(B), the registered Holder of a Global Exchange Note may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes. (d) In the event of the occurrence of any of the events specified in PARAGRAPH 2.4(A)(I), (II) or (III), Holdings will promptly make available to the Trustee a reasonable supply of Definitive Notes in fully registered form without interest coupons. Page 10 EXHIBIT A FORM OF FACE OF INITIAL NOTE [1] THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH HOLDINGS OR ANY AFFILIATE OF HOLDINGS WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF SUCH NOTE), ONLY (A) TO HOLDINGS, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS AN INSTITUTIONAL ACCREDITED INVESTOR ACQUIRING THE NOTE FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT AT MATURITY OF THE NOTES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO HOLDINGS' AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE - ------------------ 1 This form is also to be used for PIK Notes issued in payment of interest on Initial Notes. Page 1 REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. This debt instrument has been issued with original issue discount. The following information is provided pursuant to Treas. Reg. Section 1.1275-3: Issue Price: $892.70 Issue Date: September 20, 2010 Amount of Original Issue Discount: $2,124.84 per $1,000 of face amount Yield to Maturity: 17.25% Page 2 No. [___________] $__________ 15.5% Senior Note due 2010 VETERINARY CENTERS OF AMERICA, INC., a Delaware corporation, promises to pay to ___________ or registered assigns, the principal amount at maturity of [ ] Dollars on September 20, 2010 (the "STATED MATURITY DATE"). Interest Payment Dates: March 31 and September 30. Record Dates: March 15 and September 15. Page 3 Additional provisions of this Note are set forth on the other side of this Note. IN WITNESS WHEREOF, the parties have caused this instrument to be duly executed. VETERINARY CENTERS OF AMERICA, INC. By: ------------------------------- Name: Title: Dated: TRUSTEE'S CERTIFICATE OF AUTHENTICATION Chase Manhattan Bank and Trust Company, National Association, Trustee, certifies that this is one of the Notes referred to in the Indenture. By: /S/ JAMES NAGY ---------------------------------- Name: James Nagy Title: Assistant Vice President Page 4 FORM OF REVERSE SIDE OF INITIAL NOTE [2] 15.5% Senior Note due 2010 1. INTEREST (a) VETERINARY CENTERS OF AMERICA, INC., a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called "HOLDINGS"), promises to pay interest thereon from the date hereof, semi-annually in arrears on September 30 and March 31 of each year commencing March 31, 2001 and, if different, on the Stated Maturity Date (each, an "INTEREST PAYMENT DATE") at the rate of 15.5% per annum, until the principal hereof is paid. Such interest on the Notes shall accrue from the most recent date to which interest has been paid or duly provided for or, if no such interest has been paid or duly provided for, from September 20, 2000 until the principal hereof is due. Interest shall be paid in cash, except that, on any Interest Payment Date prior to the fifth anniversary of the Closing Date, Holdings will have the option to pay all or any portion of the interest payable on such date by issuing additional Notes in the form of Exhibit A to the Indenture referred to below ("PIK Notes") in a principal amount equal to the interest Holdings elects not to pay in cash on such date. Any principal of, or premium or installment of interest or Special Interest (as hereinafter defined) on this Note which is overdue shall bear interest at the rate equal to 2% per annum above the interest rate specified on the face of this Note from the date such amounts are due until they are paid (to the extent that the payment of such interest shall be legally enforceable), and such excess interest shall be payable on demand. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. (b) SPECIAL INTEREST. The holder of this Note is entitled to the benefits of the Exchange and Registration Rights Agreement, dated as of September 20, 2000, by and among Holdings and the Purchasers named therein. Capitalized terms used in this paragraph (b) but not defined herein have the meanings assigned to them in the Exchange and Registration Rights Agreement. If (i) the Shelf Registration Statement or Exchange Offer Registration Statement, as applicable, under the Exchange and Registration Rights Agreement, is not filed with the Commission on or prior to 90 days after the Trigger Date, (ii) the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, is not declared effective on or prior to 150 days after the Trigger Date, (iii) the Registered Exchange Offer is not consummated on or prior to 180 days after the Trigger Date, or (iv) the Shelf Registration Statement is filed and declared effective on or prior to 150 days after the Trigger Date but shall thereafter cease to be effective (at any time that Holdings are obligated to maintain the effectiveness thereof) without being succeeded within 45 days by an additional Registration Statement filed and declared effective (each such event referred to in clauses (i) through (iv), a "REGISTRATION DEFAULT"), Holdings will be obligated to pay Special Interest to each holder of Transfer Restricted Notes, during the period of one or more such Registration Defaults, in an amount equal to 0.5% per - ----------------------------- 2 This form is also to be used for PIK Notes issued in payment of interest on Initial Notes. Page 5 annum, which amount shall increase to 1.0% per annum after the first 120-day period following the occurrence of the first Registration Default, for the period from and including the date of occurrence of the first Registration Default until such time as no Registration Default is in effect (such amount equal to the "SPECIAL INTEREST") (after which such Special Interest shall cease to be payable). The Trustee shall have no responsibility with respect to the determination of the amount of any such Special Interest. (c) RECORD DATES, ETC. Upon the issuance of an Exchange Note in exchange for this Note, any accrued and unpaid interest (including Special Interest) on this Note shall cease to be payable to the Holder hereof but such accrued and unpaid interest (including Special Interest) shall be payable on the next Interest Payment Date for such Exchange Note to the Holder thereof on the related Regular Record Date. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Agreement, be paid to the Person in whose name this Note is registered at the close of business on the Regular Record Date (the "REGULAR RECORD DATE") for such interest which shall be the fifteenth calendar day (whether or not a Business Day) of the calendar month in which such Interest Payment Date occurs. Notwithstanding the foregoing, if this Note is issued after a Regular Record Date and prior to an Interest Payment Date, the record date for such Interest Payment Date shall be the original issue date. 2. METHOD OF PAYMENT Holdings shall pay interest on the Notes (except defaulted interest) to the Persons who are registered holders of Notes at the close of business on the March 15 or September 15 next preceding the Interest Payment Date even if Notes are canceled after the record date and on or before the Interest Payment Date. Holders must surrender Notes to a Paying Agent to collect principal payments. Holdings shall pay principal, Special Interest, if any, and interest in money of the United States of America that at the time of payment is legal tender for payment of public and private debts. Holdings will, unless such payment is made in PIK Notes, make all money payments in respect of a certificated Note (including principal and interest), by mailing a check to the registered address of each Holder thereof; PROVIDED, HOWEVER, that money payments on the Notes may also be made, in the case of a Holder of at least $1,000,000 aggregate principal amount at maturity of Notes, by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). 3. PAYING AGENT AND REGISTRAR Holdings shall maintain an office or agency, which shall be located in the Borough of Manhattan, The City of New York, where Notes may be presented for registration of transfer or for exchange (the "REGISTRAR") and an office or agency where Notes may be presented for payment (the "PAYING AGENT"). Initially, Chase Manhattan Bank and Trust Company, Page 6 National Association, a national banking association organized under the federal laws of the United States (the "TRUSTEE"), will act as Paying Agent and Registrar. Holdings may appoint and change any Paying Agent, Registrar or co-registrar without notice. Holdings or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. INDENTURE Holdings issued the Notes under an Indenture, dated as of September 20, 2000 (the "INDENTURE"), by and between Holdings and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA"). Terms defined in the Indenture and used but not defined herein have the meanings ascribed thereto in the Indenture. The Notes are subject to all terms and provisions of the Indenture, and Holders (as defined in the Indenture) are referred to the Indenture and the TIA for a statement of such terms and provisions. The Notes are senior unsecured obligations of Holdings limited to $100,000,000 aggregate principal amount at any one time outstanding, plus the amount of any PIK Notes issued (subject to SECTION 2.07 of the Indenture). This Note is one of the Initial Notes referred to in the Indenture issued in an aggregate original principal amount of $100,000,000. The Notes include the Initial Notes, the PIK Notes and any Exchange Notes issued in exchange for Initial Notes or PIK Notes. The Initial Notes, the PIK Notes and the Exchange Notes are treated as a single class of Notes under the Indenture. The Indenture imposes certain limitations on the ability of Holdings and its Subsidiaries to, among other things, make certain Investments and other Restricted Payments, pay dividends and other distributions, incur Indebtedness, enter into consensual restrictions upon the payment of certain dividends and distributions by such Subsidiaries, issue or sell shares of Capital Stock of such Subsidiaries, enter into or permit certain transactions with Affiliates and make asset sales. The Indenture also imposes limitations on the ability of Holdings to consolidate or merge with or into any other Person or convey, transfer or lease all or substantially all of the property of Holdings. 5. OPTIONAL REDEMPTION The Notes are subject to redemption, at the election of Holdings, upon not less than ten (10) nor more than sixty (60) days' notice by mail (each prepayment must relate to an aggregate principal amount of Notes of at least $5 million): (i) At any time prior to the second anniversary of the Closing Date, up to 35% of the aggregate principal amount of the Notes may be prepaid from the proceeds of an Equity Offering of Common Stock of Holdings at a price of 110% of the principal amount thereof plus accrued interest; provided that, after giving effect to any such prepayment, at least 65% of the original principal amount of the Notes issued on the Page 7 Closing Date plus all PIK Notes issued in lieu of cash interest thereon remains outstanding; (ii) at any time on or after the second anniversary of the Closing Date and prior to the third anniversary of the Closing Date, the entire aggregate principal amount of the Notes then outstanding may be prepaid concurrently with the consummation of an Equity Offering of Common Stock of Holdings or a Change of Control at a price of 110% of the principal amount plus accrued interest; (iii) prepayment of the notes will be permitted in whole or in part, at any time on or after the third anniversary of the Closing Date, at the following Redemption Prices at the prices listed below (expressed as a percentage of the principal amount of the Notes being prepaid as of the Redemption Date) plus accrued interest to the date of prepayment: Redemption Date Redemption Price September 20, 2003 - September 19, 2006 107.50% September 20, 2006 - September 19, 2007 106.20% September 20, 2007 - September 19, 2008 104.65% September 20, 2008 - September 19, 2009 103.10% September 20, 2009 and thereafter 101.55% 6. SINKING FUND; SPECIAL MANDATORY REDEMPTION (a) The Notes are not subject to any sinking fund. (b) If the aggregate amount which would be includible in gross income for federal income tax purposes with respect to the Notes before any Interest Payment Date occurring after the fifth (5th) anniversary of the Closing Date (the "AGGREGATE INCLUSION") exceeds an amount equal to the sum of (x) the aggregate amount of interest paid in cash under the Notes before such Interest Payment Date and (y) the product of the issue price of all of the Notes (as determined under United States Treasury Regulation Section 1.1273-2(a)) multiplied by 17.25% (the sum of (x) and (y), the "Adjusted Actual Payment"), Holdings shall, on such Interest Payment Date, make a mandatory redemption (any such redemption a "SPECIAL MANDATORY REDEMPTION") of the Notes, without premium, to the extent that the Aggregate Inclusion exceeds the Adjusted Actual Payment. Page 8 7. NOTICE OF REDEMPTION Notice of redemption will be mailed by first-class mail at least 10 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at such Holder's registered address. Notes in denominations larger than $1,000 (in principal amount at maturity) may be redeemed in part but only in multiples of $1,000 (in principal amount at maturity). If money sufficient to pay the redemption price of and accrued and unpaid interest and Special Interest, if any, on all Notes (or portions thereof) to be redeemed on the Redemption Date is deposited with the Paying Agent on or before the Redemption Date and certain other conditions are satisfied, on and after such date, cash interest and Special Interest, if any, ceases to accrue on such Notes (or such portions thereof) called for redemption. 8. REPURCHASE OF NOTES AT THE OPTION OF HOLDERS UPON CHANGE OF CONTROL AND SALE OF ASSETS Upon the occurrence of a Change of Control, each Holder of Notes shall have the right, subject to certain conditions specified in the Indenture, to require Holdings to repurchase all or any part of the Notes of such Holder at a purchase price in cash equal to 101% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest thereon and Special Interest, if any, in respect thereof to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due and Special Interest, if any, on the relevant Interest Payment Date) as provided in, and subject to the terms of, the Indenture. In accordance with SECTION 4.10 of the Indenture, Holdings will be required to offer to purchase Notes upon the occurrence of certain sales of assets. 9. RESTRICTIONS ON PAYMENT OF SPECIAL MANDATORY REDEMPTION Any payment in connection with a Special Mandatory Redemption is subject to the restrictions of SECTION 7.12 of the Indenture. 10. DENOMINATIONS; TRANSFER; EXCHANGE The Notes are in registered form without coupons in denominations of $1,000 (in principal amount at maturity) and multiples thereof. PIK Notes, if any, may be in registered form in any whole dollar amount. A Holder may transfer or exchange Initial Notes in accordance with the Indenture. Upon any transfer or exchange, the Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes required by law or permitted by the Indenture. Holdings shall not be required to make and the Registrar need not register transfers or exchanges of Notes selected for redemption (except, in the case of a Note to be redeemed in part, the portion of the Note not to be redeemed) or any Notes for a period of 15 days prior to a selection of Notes to be redeemed. 11. PERSONS DEEMED OWNERS Except as provided in paragraph 2 hereof, the registered Holder of this Note shall be treated as the owner of it for all purposes. Page 9 12. UNCLAIMED MONEY If money for the payment of principal of or interest on the Notes has been deposited with the Trustee or Paying Agent and remains unclaimed for two years after such amount is due and payable, the Trustee or Paying Agent shall pay the money back to Holdings at its written request unless an abandoned property law designates another Person. After any such payment, the Trustee and the Paying Agent shall have no further liability for such funds and Holders entitled to the money must look only to the recipient and not to the Trustee for payment. 13. DISCHARGE AND DEFEASANCE Subject to certain conditions, Holdings at any time may terminate some of or all its obligations under the Notes and the Indenture if Holdings deposits with the Trustee money or U.S. Government Obligations for the payment of principal of and interest on the Notes to redemption or maturity, as the case may be. 14. AMENDMENT, WAIVER Subject to certain exceptions set forth in the Indenture, (a) the Indenture or the Notes may be amended without prior notice to any Holder but with the written consent of the Holders of at least a majority in principal amount at maturity of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange for the Notes) and (b) any default may be waived with the written consent of the Holders of at least a majority in principal amount at maturity of the outstanding Notes. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder of Notes, Holdings and the Trustee may amend the Indenture or the Notes (a) to cure any ambiguity, omission, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes (PROVIDED, HOWEVER, that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code); (c) to add to the covenants of Holdings for the benefit of the Holders or to surrender any right or power conferred on Holdings in the Indenture; (d) to comply with any requirement of the Commission in connection with qualifying, or maintaining the qualification of, the Indenture under the TIA; (e) to make any change that does not adversely affect the rights of any Holder; (f) to provide for the issuance of the Exchange Notes which shall have terms substantially identical in all material respects to the Initial Notes (except that the transfer restrictions contained in the Initial Notes shall be modified or eliminated, as appropriate), and which shall be treated, together with any outstanding Initial Notes, and any PIK Notes issued in payment of interest on the Initial Notes or the Exchange Notes, as a single issue of securities; or (g) to change the name or title of the Notes. 15. DEFAULTS, REMEDIES AND ACCELERATION If an Event of Default (other than an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of Holdings or the Company) occurs and is continuing, Page 10 the Trustee or the Holders of (i) until a Note Registration, more than 50% in principal amount of the Notes at the time outstanding, and (ii) thereafter, 25% or more in principal amount at maturity of the outstanding Notes may declare the principal of and accrued but unpaid interest on all the Notes to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of Holdings or the Company occurs, the principal of and interest on all the Notes shall become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. Under certain circumstances, the Holders of a majority in principal amount at maturity of the Notes may rescind any such acceleration with respect to the Notes and its consequences. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any rights or powers under the Indenture at the request or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal or interest when due, no Holder may pursue any remedy with respect to the Indenture or the Notes unless (i) such Holder has previously given to the Trustee written notice stating that an Event of Default is continuing, (ii) Holders of at least 25% in principal amount at maturity of the outstanding Notes have requested the Trustee in writing to pursue the remedy, (iii) such Holder or Holders have offered to the Trustee reasonable security or indemnity against any loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after receipt of the request and the offer of security or indemnity and (v) the Holders of a majority in principal amount at maturity of the outstanding Notes have not given the Trustee a direction inconsistent with such request during such 60-day period. Subject to certain restrictions, the Holders of a majority in principal amount at maturity of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or, subject to certain exceptions in the Indenture, that the Trustee determines is unduly prejudicial to the rights of other Holders or would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. 16. TRUSTEE DEALINGS WITH HOLDINGS Subject to certain limitations imposed by the TIA, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with and collect obligations owed to it by Holdings or its Affiliates and may otherwise deal with Holdings or its Affiliates with the same rights it would have if it were not Trustee. Page 11 17. NO RECOURSE AGAINST OTHERS A director, officer, employee or stockholder, as such, of Holdings or any of the Subsidiaries shall not have any liability for any obligations of Holdings or any of the Subsidiaries under the Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Note, each Holder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Notes. 18. AUTHENTICATION This Note shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Note. 19. ABBREVIATIONS Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 20. GOVERNING LAW THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 21. REGISTRATION RIGHTS Pursuant to the Exchange and Registration Rights Agreement, Holdings will be obligated upon the occurrence of certain events to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Note for an Exchange Note which has been registered under the Securities Act, in like original principal amount and having terms identical in all material respects to this Note, other than there shall be no provision for Special Interest. HOLDINGS WILL FURNISH TO ANY HOLDER OF NOTES UPON WRITTEN REQUEST AND WITHOUT CHARGE TO THE HOLDER A COPY OF THE INDENTURE WHICH HAS IN IT THE TEXT OF THIS NOTE. Page 12 ASSIGNMENT FORM To assign this Note, fill in the form below: I or we assign and transfer this Note to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Note on the books of Holdings. The agent may substitute another to act for him. - ------------------------------------------------------------ Date: ________________ Your Signature: _____________________ - ------------------------------------------------------------ Sign exactly as your name appears on the other side of this Note. Page 13 CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER RESTRICTED NOTES This certificate relates to $_________ principal amount at maturity of Notes held in definitive form by the undersigned. The undersigned has requested the Trustee by written order to exchange or register the transfer of a Note or Notes. In connection with any transfer of any of the Notes evidenced by this certificate occurring prior to the expiration of the period referred to in Rule 144(k) under the Securities Act, the undersigned confirms that such Notes are being transferred in accordance with its terms: CHECK ONE BOX BELOW [ ] (1) to Holdings; or [ ] (2) to the Registrar for registration in the name of the Holder, without transfer; or [ ] (3) pursuant to an effective registration statement under the Securities Act of 1933; or [ ] (4) inside the United States to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in reliance on Rule 144A, in each case pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or [ ] (5) outside the United States in an offshore transaction within the meaning of Regulation S under the Securities Act in compliance with Rule 904 under the Securities Act of 1933; or [ ] (6) to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933) that has furnished to the Trustee a signed letter containing certain representations and agreements; or [ ] (7) pursuant to another available exemption from registration provided by Rule 144 under the Securities Act of 1933. Page 14 Unless one of the boxes is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any Person other than the registered holder thereof; PROVIDED, HOWEVER, that if box (5), (6) or (7) is checked, the Trustee may require, prior to registering any such transfer of the Notes, such legal opinions, certifications and other information as Holdings has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933. ------------------------ Your Signature Signature Guarantee: Date: ----------------------- ------------------------- Signature must be guaranteed Signature of Signature by a participant in a Guarantee recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee - ------------------------------------------------------------ TO BE COMPLETED BY PURCHASER IF (4) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding Holdings as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ------------------------- ------------------------------- NOTICE: To be executed by an executive officer Page 15 OPTION OF HOLDER TO ELECT PURCHASE IF YOU WANT TO ELECT TO HAVE THIS NOTE PURCHASED BY HOLDINGS PURSUANT TO SECTION 4.09 (CHANGE OF CONTROL) OR SECTION 4.10 (APPLICATION OF EXCESS PROCEEDS FROM SALE OF ASSETS) OF THE INDENTURE, CHECK THE BOX: [ ] LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK CHANGE OF CONTROL IF YOU WANT TO ELECT TO HAVE ONLY PART OF THIS NOTE PURCHASED BY HOLDINGS PURSUANT TO SECTION 4.09 OR 4.10 OF THE INDENTURE, STATE THE PRINCIPAL AMOUNT AT MATURITY ($1,000 OR A MULTIPLE THEREOF): $ DATE: __________________ YOUR SIGNATURE: _____________________________ (SIGN EXACTLY AS YOUR NAME APPEARS ON THE OTHER SIDE OF THE NOTE) SIGNATURE GUARANTEE:________________________________________________________ SIGNATURE MUST BE GUARANTEED BY A PARTICIPANT IN A RECOGNIZED SIGNATURE GUARANTY MEDALLION PROGRAM OR OTHER SIGNATURE GUARANTOR ACCEPTABLE TO THE TRUSTEE Page 16 EXHIBIT B FORM OF FACE OF EXCHANGE NOTE [1] [Global Notes Legend] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO HOLDINGS OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO., OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL EXCHANGE NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO DTC, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL EXCHANGE NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. This debt instrument has been issued with original issue discount. The following information is provided pursuant to Treas. Reg. Section 1.1275-3: Issue Price: $892.70 Issue Date: September 20, 2000 Amount of Original Issue Discount: $2,124.84 Yield to Maturity: 17.25% - --------------------------- 1 This form is also to be used for PIK Notes issued in payment of interest on Exchange Notes. Page 17 No. $__________ 15.5% Senior Note due 2010 [CUSIP No. ______] VETERINARY CENTERS OF AMERICA, INC., a Delaware corporation, promises to pay to ___________________, or registered assigns, the principal amount at maturity [of ] Dollars on September 20, 2010 (the "STATED MATURITY DATE"). Interest Payment Dates: March 31 and September 30. Record Dates: March 15 and September 15. Page 18 Additional provisions of this Note are set forth on the other side of this Note. IN WITNESS WHEREOF, the parties have caused this instrument to be duly executed. VETERINARY CENTERS OF AMERICA, INC. By: -------------------------------- Name: Title: Dated: TRUSTEE'S CERTIFICATE OF AUTHENTICATION Chase Manhattan Bank and Trust Company, National Association, Trustee, certifies that this is one of the Notes referred to in the Indenture. By: -------------------------------- Authorized Signatory */ If the Note is to be issued in global form, add the Global Notes Legend and the attachment from Exhibit A captioned "TO BE ATTACHED TO GLOBAL EXCHANGE NOTES - - SCHEDULE OF INCREASES OR DECREASES IN GLOBAL EXCHANGE NOTE". Page 19 FORM OF REVERSE SIDE OF EXCHANGE NOTE2 15.5% Senior Note due 2010 1. INTEREST VETERINARY CENTERS OF AMERICA, INC., a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called "HOLDINGS"), promises to pay interest thereon from the date hereof, semi-annually in arrears on September 30 and March 31 of each year commencing March 31, 2001 and, if different, on the Stated Maturity Date (each, an "Interest Payment Date") at the rate of 15.5% per annum, until the principal hereof is paid. Such interest on the Notes shall accrue from the most recent date to which interest has been paid or duly provided for or, if no such interest has been paid or duly provided for, from September 20, 2000 until the principal hereof is due. Interest shall be paid in cash, except that, on any Interest Payment Date prior to the fifth anniversary of the Closing Date, Holdings will have the option to pay all or any portion of the interest payable on such date by issuing additional Notes ("PIK Notes") in a principal amount equal to the interest Holdings elects not to pay in cash on such date. Any principal of, or premium or installment of interest on this Note which is overdue shall bear interest at the rate equal to 2% per annum above the interest rate specified on the face of this Note from the date such amounts are due until they are paid (to the extent that the payment of such interest shall be legally enforceable), and such excess interest shall be payable on demand. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Agreement, be paid to the Person in whose name this Note is registered at the close of business on the Regular Record Date. "REGULAR RECORD DATE" for such interest shall be the fifteenth calendar day (whether or not a Business Day) immediately preceding such Interest Payment Date. Notwithstanding the foregoing, if this Note is issued after a Regular Record Date and prior to an Interest Payment Date, the record date for such Interest Payment Date shall be the original issue date. 2. METHOD OF PAYMENT Holdings shall pay interest on the Notes (except defaulted interest) to the Persons who are registered holders of Notes at the close of business on the March 15 or September 15 next preceding the Interest Payment Date even if Notes are canceled after the record date and on or before the Interest Payment Date. Holders must surrender Notes to a Paying Agent to collect principal payments. Holdings shall pay principal and interest in money of the United States of America that at the time of payment is legal tender for payment of public and private debts. Holdings will, unless such payment is made in PIK Notes, make all money payments in respect of a certificated Note (including principal and interest), by mailing a check to the registered - ------------------------- 1 This form is also to be used for PIK Notes issued in payment of interest on Exchange Notes. Page 20 address of each Holder thereof; PROVIDED, HOWEVER, that money payments on the Notes may also be made, in the case of a Holder of at least $1,000,000 aggregate principal amount at maturity of Notes, by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). 3. PAYING AGENT AND REGISTRAR Holdings shall maintain an office or agency, which shall be located in the Borough of Manhattan, The City of New York, where Notes may be presented for registration of transfer or for exchange (the "REGISTRAR") and an office or agency where Notes may be presented for payment (the "PAYING AGENT"). Initially, Chase Manhattan Bank and Trust Company, National Association, a national banking association organized under the federal laws of the United States (the "TRUSTEE"), will act as Paying Agent and Registrar. Holdings may appoint and change any Paying Agent, Registrar or co-registrar without notice. Holdings or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. INDENTURE Holdings issued the Notes under an Indenture, dated as of September 20, 2000 (the "INDENTURE"), by and between Holdings and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA"). Terms defined in the Indenture and used but not defined herein have the meanings ascribed thereto in the Indenture. The Notes are subject to all terms and provisions of the Indenture, and Holders (as defined in the Indenture) are referred to the Indenture and the TIA for a statement of such terms and provisions. The Notes are senior unsecured obligations of Holdings limited to $100,000,000 aggregate principal amount at any one time outstanding, plus the amount of any PIK Notes issued (subject to SECTION 2.07 of the Indenture). This Note is one of the Exchange Notes referred to in the Indenture issued in an aggregate principal amount of $100,000,000. The Notes include the Exchange Notes issued in exchange for Initial Notes and PIK Notes. The Initial Notes, the PIK Notes and the Exchange Notes are treated as a single class of Notes under the Indenture. The Indenture imposes certain limitations on the ability of Holdings and its Subsidiaries to, among other things, make certain Investments and other Restricted Payments, pay dividends and other distributions, incur Indebtedness, enter into consensual restrictions upon the payment of certain dividends and distributions by such Subsidiaries, issue or sell shares of Capital Stock of such Subsidiaries, enter into or permit certain transactions with Affiliates and make asset sales. The Indenture also imposes limitations on the ability of Holdings to Page 21 consolidate or merge with or into any other Person or convey, transfer or lease all or substantially all of the property of Holdings. 5. OPTIONAL REDEMPTION The Notes are subject to redemption, at the election of Holdings, upon not less than ten (10) nor more than sixty (60) days' notice by mail (each prepayment must relate to an aggregate principal amount of Notes of at least $5 million): (i) At any time prior to the second anniversary of the Closing Date, up to 35% of the aggregate principal amount of the Notes may be prepaid from the proceeds of an Equity Offering of Common Stock of Holdings at a price of 110% of the principal amount thereof plus accrued interest; provided that, after giving effect to any such prepayment, at least 65% of the original principal amount of the Notes issued on the Closing Date, plus all PIK Notes issued in lieu of cash interest thereon remains outstanding; (ii) at any time on or after the second anniversary of the Closing Date and prior to the third anniversary of the Closing Date, the entire aggregate principal amount of the Notes then outstanding may be prepaid concurrently with the consummation of an Equity Offering of Common Stock of Holdings or a Change of Control at a price of 110% of the principal amount plus accrued interest; (iii) prepayment of the notes will be permitted in whole or in part, at any time on or after the third anniversary of the Closing Date at the following Redemption Prices at the prices listed below (expressed as a percentage of the principal amount of the Notes being prepaid as of the Redemption Date) plus accrued interest to the date of prepayment: Redemption Date Redemption Price September 20, 2003 - September 19, 2006 107.50% September 20, 2006 - September 19, 2007 106.20% September 20, 2007 - September 19, 2008 104.65% September 20, 2008 - September 19, 2009 103.10% September 20, 2009 and thereafter 101.55% Page 22 6. SINKING FUND; SPECIAL MANDATORY REDEMPTION (a) The Notes are not subject to any sinking fund. (b) If the aggregate amount which would be includible in gross income for federal income tax purposes with respect to the Notes before any Interest Payment Date occurring after the fifth (5th) anniversary of the Closing Date (the "AGGREGATE INCLUSION") exceeds an amount equal to the sum of (x) the aggregate amount of interest paid in cash under the Notes before such Interest Payment Date and (y) the product of the issue price of all of the Notes (as determined under United States Treasury Regulation Section 1.1273-2(a)) multiplied by 17.25% (the sum of (x) and (y), the "ADJUSTED ACTUAL PAYMENT"), Holdings shall, on such Interest Payment Date, make a mandatory redemption (any such redemption a "SPECIAL MANDATORY REDEMPTION") of the Notes, without premium, to the extent that the Aggregate Inclusion exceeds the Adjusted Actual Payment. 7. NOTICE OF REDEMPTION Notice of redemption will be mailed by first-class mail at least 10 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at such Holder's registered address. Notes in denominations larger than $1,000 (in principal amount at maturity) may be redeemed in part but only in multiples of $1,000 (in principal amount at maturity). If money sufficient to pay the redemption price of and accrued and unpaid interest on all Notes (or portions thereof) to be redeemed on the Redemption Date is deposited with the Paying Agent on or before the Redemption Date and certain other conditions are satisfied, on and after such date, cash interest ceases to accrue on such Notes (or such portions thereof) called for redemption. 8. REPURCHASE OF NOTES AT THE OPTION OF HOLDERS UPON CHANGE OF CONTROL AND SALE OF ASSETS Upon the occurrence of a Change of Control, each Holder of Notes shall have the right, subject to certain conditions specified in the Indenture, to require Holdings to repurchase all or any part of the Notes of such Holder at a purchase price in cash equal to 101% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest thereon and Special Interest, if any, in respect thereof to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due and Special Interest, if any, on the relevant Interest Payment Date) as provided in, and subject to the terms of, the Indenture. In accordance with SECTION 4.10 of the Indenture, Holdings will be required to offer to purchase Notes upon the occurrence of certain sales of assets. 9. RESTRICTIONS ON PAYMENT OF SPECIAL MANDATORY REDEMPTION Any payment in connection with a Special Mandatory Redemption is subject to the restrictions of SECTION 7.12 of the Indenture. Page 23 10. DENOMINATIONS; TRANSFER; EXCHANGE The Notes are in registered form without coupons in denominations of $1,000 (in principal amount at maturity) and multiples thereof. PIK Notes, if any, may be in registered form in any whole dollar amount. A Holder may transfer or exchange Initial Notes in accordance with the Indenture. Upon any transfer or exchange, the Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes required by law or permitted by the Indenture. Holdings shall not be required to make and the Registrar need not register transfers or exchanges of Notes selected for redemption (except, in the case of a Note to be redeemed in part, the portion of the Note not to be redeemed) or any Notes for a period of 15 days prior to a selection of Notes to be redeemed. 11. PERSONS DEEMED OWNERS Except as provided in paragraph 2 hereof, the registered Holder of this Note shall be treated as the owner of it for all purposes. 12. UNCLAIMED MONEY If money for the payment of principal of or interest on the Notes has been deposited with the Trustee or Paying Agent and remains unclaimed for two years after such amount is due and payable, the Trustee or Paying Agent shall pay the money back to Holdings at its written request unless an abandoned property law designates another Person. After any such payment, the Trustee and the Paying Agent shall have no further liability for such funds and Holders entitled to the money must look only to the recipient and not to the Trustee for payment. 13. DISCHARGE AND DEFEASANCE Subject to certain conditions, Holdings at any time may terminate some of or all its obligations under the Notes and the Indenture if Holdings deposits with the Trustee money or U.S. Government Obligations for the payment of principal of and interest on the Notes to redemption or maturity, as the case may be. 14. AMENDMENT, WAIVER Subject to certain exceptions set forth in the Indenture, (a) the Indenture or the Notes may be amended without prior notice to any Holder but with the written consent of the Holders of at least a majority in principal amount at maturity of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange for the Notes) and (b) any default may be waived with the written consent of the Holders of at least a majority in principal amount at maturity of the outstanding Notes. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder of Notes, Holdings and the Trustee may amend the Indenture or the Notes (a) to cure any ambiguity, omission, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes (PROVIDED, HOWEVER, that the uncertificated Notes are issued in registered form for purposes of Section Page 24 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code); (c) to add to the covenants of Holdings for the benefit of the Holders or to surrender any right or power conferred on Holdings in the Indenture; (d) to comply with any requirement of the Commission in connection with qualifying, or maintaining the qualification of, the Indenture under the TIA; (e) to make any change that does not adversely affect the rights of any Holder; (f) to provide for the issuance of the Exchange Notes which shall have terms substantially identical in all material respects to the Initial Notes (except that the transfer restrictions contained in the Initial Notes shall be modified or eliminated, as appropriate), and which shall be treated, together with any outstanding Initial Notes and any PIK Notes issued in payment of interest on the Initial Notes or the Exchange Notes, as a single issue of securities; or (g) to change the name or title of the Notes. 15. DEFAULTS, REMEDIES AND ACCELERATION If an Event of Default (other than an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of Holdings or the Company) occurs and is continuing, the Trustee or the Holders of (i) until a Note Registration, more than 50% in principal amount of the Notes at the time outstanding, and (ii) thereafter, 25% or more in principal amount at maturity of the outstanding Notes may declare the principal of and accrued but unpaid interest on all the Notes to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of Holdings or the Company occurs, the principal of and interest on all the Notes shall become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. Under certain circumstances, the Holders of a majority in principal amount at maturity of the Notes may rescind any such acceleration with respect to the Notes and its consequences. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any rights or powers under the Indenture at the request or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal or interest when due, no Holder may pursue any remedy with respect to the Indenture or the Notes unless (i) such Holder has previously given to the Trustee written notice stating that an Event of Default is continuing, (ii) Holders of at least 25% in principal amount at maturity of the outstanding Notes have requested the Trustee in writing to pursue the remedy, (iii) such Holder or Holders have offered to the Trustee reasonable security or indemnity against any loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after receipt of the request and the offer of security or indemnity and (v) the Holders of a majority in principal amount at maturity of the outstanding Notes have not given the Trustee a direction inconsistent with such request during such 60-day period. Subject to certain restrictions, the Holders of a majority in principal amount at maturity of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to Page 25 follow any direction that conflicts with law or the Indenture or, subject to certain exceptions in the Indenture, that the Trustee determines is unduly prejudicial to the rights of other Holders or would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. 16. TRUSTEE DEALINGS WITH HOLDINGS Subject to certain limitations imposed by the TIA, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with and collect obligations owed to it by Holdings or its Affiliates and may otherwise deal with Holdings or its Affiliates with the same rights it would have if it were not Trustee. 17. NO RECOURSE AGAINST OTHERS A director, officer, employee or stockholder, as such, of Holdings or any of the Subsidiaries shall not have any liability for any obligations of Holdings or any of the Subsidiaries under the Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Note, each Holder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Notes. 18. AUTHENTICATION This Note shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Note. 19. ABBREVIATIONS Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 20. GOVERNING LAW THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Page 26 21. CUSIP NUMBERS Holdings has caused CUSIP numbers to be printed on the Notes and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. HOLDINGS WILL FURNISH TO ANY HOLDER OF NOTES UPON WRITTEN REQUEST AND WITHOUT CHARGE TO THE HOLDER A COPY OF THE INDENTURE WHICH HAS IN IT THE TEXT OF THIS NOTE. Page 27 ASSIGNMENT FORM To assign this Note, fill in the form below: I or we assign and transfer this Note to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Note on the books of Holdings. The agent may substitute another to act for him. - ------------------------------------------------------------ Date: ________________ Your Signature: _____________________ - ------------------------------------------------------------ Sign exactly as your name appears on the other side of this Note. Page 28 OPTION OF HOLDER TO ELECT PURCHASE IF YOU WANT TO ELECT TO HAVE THIS NOTE PURCHASED BY HOLDINGS PURSUANT TO SECTION 4.09 (CHANGE OF CONTROL) OR SECTION 4.10 (APPLICATION OF EXCESS PROCEEDS FROM SALE OF ASSETS) OF THE INDENTURE, CHECK THE BOX: [ ] LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK CHANGE OF CONTROL IF YOU WANT TO ELECT TO HAVE ONLY PART OF THIS NOTE PURCHASED BY HOLDINGS PURSUANT TO SECTION 4.09 OR 4.10 OF THE INDENTURE, STATE THE PRINCIPAL AMOUNT AT MATURITY ($1,000 OR A MULTIPLE THEREOF): $ DATE: __________________ YOUR SIGNATURE: __________________ (SIGN EXACTLY AS YOUR NAME APPEARS ON THE OTHER SIDE OF THE NOTE) SIGNATURE GUARANTEE:________________________________________________________ SIGNATURE MUST BE GUARANTEED BY A PARTICIPANT IN A RECOGNIZED SIGNATURE GUARANTY MEDALLION PROGRAM OR OTHER SIGNATURE GUARANTOR ACCEPTABLE TO THE TRUSTEE Page 29 VETERINARY CENTERS OF AMERICA, INC. Senior Notes due 2010 INDENTURE Dated as of September 20, 2000 Chase Manhattan Bank and Trust Company, National Association, Trustee
TABLE OF CONTENTS PAGE ARTICLE 1. DEFINITIONS AND ACCOUNTING TERMS.................................................1 SECTION 1.01. DEFINITIONS...............................................................1 SECTION 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT........................20 SECTION 1.03. RULES OF CONSTRUCTION....................................................21 ARTICLE 2. THE NOTES.......................................................................22 SECTION 2.01. FORM AND DATING..........................................................22 SECTION 2.02. EXECUTION AND AUTHENTICATION.............................................22 SECTION 2.03. REGISTRAR AND PAYING AGENT...............................................23 SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST......................................23 SECTION 2.05. HOLDER LISTS.............................................................23 SECTION 2.06. TRANSFER AND EXCHANGE....................................................24 SECTION 2.07. REPLACEMENT NOTES........................................................24 SECTION 2.08. OUTSTANDING NOTES........................................................25 SECTION 2.09. TEMPORARY NOTES..........................................................25 SECTION 2.10. CANCELLATION.............................................................25 SECTION 2.11. DEFAULTED INTEREST.......................................................26 SECTION 2.12. CUSIP NUMBERS............................................................26 ARTICLE 3. REDEMPTION......................................................................26 SECTION 3.01. NOTICES TO TRUSTEE.......................................................26 SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED........................................27 SECTION 3.03. NOTICE OF REDEMPTION.....................................................27 SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION...........................................28 SECTION 3.05. DEPOSIT OF REDEMPTION PRICE..............................................28 SECTION 3.06. NOTES REDEEMED IN PART...................................................28 ARTICLE 4. AFFIRMATIVE COVENANTS...........................................................28 SECTION 4.01. PAYMENT OF NOTES.........................................................28 SECTION 4.02. COMMISSION REPORTS.......................................................29 SECTION 4.03. PRESERVATION OF CORPORATE EXISTENCE......................................29 SECTION 4.04. MAINTENANCE OF PROPERTIES................................................29 SECTION 4.05. TAXES....................................................................29 SECTION 4.06. COMPLIANCE CERTIFICATE...................................................30 SECTION 4.07. COMPLIANCE WITH LAW......................................................30 SECTION 4.08. INSURANCE................................................................30 SECTION 4.09. OFFER TO REPURCHASE UPON CHANGE OF CONTROL...............................30 SECTION 4.10. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS......................32 SECTION 4.11. FURTHER ASSURANCES.......................................................33 ARTICLE 5. NEGATIVE COVENANTS APPLICABLE TO HOLDINGS AND ITS SUBSIDIARIES..................33 SECTION 5.01. STAY, EXTENSION AND USURY LAWS...........................................33 SECTION 5.02. RESTRICTED PAYMENTS......................................................33 SECTION 5.03. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES...........36 SECTION 5.04. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED CAPITAL STOCK OR PREFERRED STOCK.................................................37 SECTION 5.05. ASSET DISPOSITIONS.......................................................41 SECTION 5.06. TRANSACTIONS WITH AFFILIATES.............................................43 SECTION 5.07. LIMITATION ON LIENS......................................................44 SECTION 5.08. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF SUBSIDIARIES.......44 SECTION 5.09. SALES AND LEASEBACK TRANSACTIONS.........................................45 SECTION 5.10. CONDUCT OF BUSINESS......................................................45 ARTICLE 6. COVENANTS APPLICABLE TO HOLDINGS................................................45 SECTION 6.01. BUSINESS ACTIVITIES OF HOLDINGS..........................................45 SECTION 6.02. MERGER, CONSOLIDATION, OR SALES OF ASSETS OF HOLDINGS....................46 ARTICLE 7. EVENTS OF DEFAULT; REMEDIES.....................................................47 SECTION 7.01. EVENTS OF DEFAULT........................................................47 SECTION 7.02. ACCELERATION.............................................................48 SECTION 7.03. OTHER REMEDIES...........................................................49 SECTION 7.04. WAIVER OF PAST DEFAULTS..................................................50 SECTION 7.05. CONTROL BY MAJORITY......................................................50 SECTION 7.06. LIMITATION ON SUITS......................................................50 SECTION 7.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.....................................51 SECTION 7.08. COLLECTION SUIT BY TRUSTEE...............................................51 SECTION 7.09. TRUSTEE MAY FILE PROOFS OF CLAIM.........................................51 SECTION 7.10. PRIORITIES...............................................................51 SECTION 7.11. UNDERTAKING FOR COSTS....................................................52 SECTION 7.12. SUBORDINATION OF SPECIAL MANDATORY REDEMPTION............................52 ARTICLE 8. TRUSTEE.........................................................................53 SECTION 8.01. DUTIES OF TRUSTEE........................................................53 SECTION 8.02. RIGHTS OF TRUSTEE........................................................54 SECTION 8.03. INDIVIDUAL RIGHTS OF TRUSTEE.............................................55 SECTION 8.04. TRUSTEE'S DISCLAIMER.....................................................55 SECTION 8.05. NOTICE OF DEFAULTS.......................................................56 SECTION 8.06. REPORTS BY TRUSTEE TO HOLDERS............................................56 SECTION 8.07. COMPENSATION AND INDEMNITY...............................................56 SECTION 8.08. REPLACEMENT OF TRUSTEE...................................................57 SECTION 8.09. SUCCESSOR TRUSTEE BY MERGER..............................................58 SECTION 8.10. ELIGIBILITY; DISQUALIFICATION............................................58 SECTION 8.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST HOLDINGS.......................59 ARTICLE 9. DISCHARGE OF INDENTURE; DEFEASANCE..............................................59 SECTION 9.01. DISCHARGE OF LIABILITY ON NOTES; DEFEASANCE..............................59 SECTION 9.02. CONDITIONS TO DEFEASANCE.................................................60 SECTION 9.03. APPLICATION OF TRUST MONEY...............................................61 SECTION 9.04. REPAYMENT TO HOLDINGS....................................................61 SECTION 9.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS.....................................61 SECTION 9.06. REINSTATEMENT............................................................61 ARTICLE 10. AMENDMENTS.....................................................................62 SECTION 10.01. WITHOUT CONSENT OF HOLDERS...............................................62 SECTION 10.02. WITH CONSENT OF HOLDERS..................................................62 SECTION 10.03. COMPLIANCE WITH TRUST INDENTURE ACT......................................63 SECTION 10.04. REVOCATION AND EFFECT OF CONSENTS AND WAIVERS............................63 SECTION 10.05. NOTATION ON OR EXCHANGE OF NOTES.........................................64 SECTION 10.06. TRUSTEE TO SIGN AMENDMENTS...............................................64 ARTICLE 11. MISCELLANEOUS..................................................................64 SECTION 11.01. TRUST INDENTURE ACT CONTROLS.............................................64 SECTION 11.02. NOTICES..................................................................64 SECTION 11.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS..............................66 SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.......................66 SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION............................66 SECTION 11.06. WHEN NOTES DISREGARDED...................................................66 SECTION 11.07. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR.............................67 SECTION 11.08. LEGAL HOLIDAYS...........................................................67 SECTION 11.09. GOVERNING LAW............................................................67 SECTION 11.10. NO RECOURSE AGAINST OTHERS...............................................67 SECTION 11.11. SUCCESSORS...............................................................67 SECTION 11.12. MULTIPLE ORIGINALS; COUNTERPARTS.........................................67 SECTION 11.13. TABLE OF CONTENTS; HEADINGS..............................................67 SECTION 11.14. INCORPORATION............................................................67 SECTION 11.15. INTENT TO LIMIT INTEREST TO MAXIMUM......................................67
Appendix A Provisions Relating to the Initial Notes and the Exchange Notes EXHIBITS: Exhibit A - Form of Initial Note Exhibit B - Form of Exchange Note SCHEDULES: Schedule 5.06 - Affiliate Transactions EX-4 7 ex-4_4.txt EXHIBIT 4.4 - INDENTURE AGREEMENT EXHIBIT 4.4 INDENTURE (this "INDENTURE") dated as of September 20, 2000, by and among VICAR OPERATING, INC., a Delaware corporation (the "COMPANY"), the Guarantors listed on the signature pages hereof (the "GUARANTORS") and Chase Manhattan Bank and Trust Company, National Association, a national banking association organized under the federal laws of the United States, as trustee (the "TRUSTEE"). Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of (a) the Company's Senior Subordinated Notes due 2010 issued on the date hereof (such notes, the "INITIAL NOTES") and (b) if and when issued as provided in the Exchange and Registration Rights Agreement (as defined in APPENDIX A hereto (the "Appendix")) or in this Indenture, the Company's Senior Subordinated Notes due 2010 issued in the Registered Exchange Offer in exchange for any Initial Notes or otherwise as provided in this Indenture (the "EXCHANGE NOTES" and, together with the Initial Notes, the "NOTES," such term to include any such notes issued in exchange or replacement therefor). Except as otherwise provided herein, the Notes shall be limited to $20,000,000, in aggregate principal amount outstanding at any time. ARTICLE 1. DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. DEFINITIONS. As used herein, the following terms shall have the meanings specified herein unless the context otherwise requires: "ACCREDITED INVESTOR" means any Person that is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act. "ACQUIRED INDEBTEDNESS" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness Incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person at the time such asset is acquired by such specified Person. "ADJUSTED EBITDA" means for the applicable period of measurement of the Company and its Subsidiaries, (i) Consolidated EBITDA for such period MINUS (ii) Capital Expenditures of the Company and its Subsidiaries for such period, on a consolidated basis, exclusive of Capital Expenditures constituting Permitted Acquisitions or funded with Net Proceeds from Asset Dispositions which are reinvested in accordance with SECTION 5.05. "AFFILIATE" means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "CONTROL" (including, with correlative Page 1 meanings, the terms "CONTROLLING," "CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as used with respect to any specified Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; PROVIDED, HOWEVER, that in the case of Holdings, the Company or any of their respective Subsidiaries beneficial ownership of 10% or more of the Equity Interests in Holdings, the Company or such Subsidiary, as the case may be, shall be deemed to be control. Notwithstanding the foregoing, in no event will the Purchasers or any Holder or any lender under the Credit Agreement or any holder of Holdings Notes or any of their respective Affiliates be deemed to be an Affiliate of Holdings or the Company solely by virtue of purchasing or holding any Notes or being such a lender or holding any Holdings Notes. "AFFILIATE TRANSACTION" is defined in SECTION 5.06. "APPENDIX" is defined in the recitals. "APPLICABLE LAW" means all laws, statutes, treaties, rules, codes (including building codes), ordinances, regulations, certificates, orders and licenses of, and legally binding interpretations by, any Governmental Authority and judgments, decrees, injunctions, writs, permits, orders or like governmental action of any Governmental Authority (including environmental laws and those pertaining to health or safety) applicable to the Company or any of its Subsidiaries or any of their properties, assets or operations. "ASSET DISPOSITION" means the disposition whether by sale, issuance, lease (as lessor (other than under operating leases)), transfer, loss, damage, destruction, condemnation or other transaction (including any merger or consolidation) or series of related transactions of any of the following: (a) any of the Capital Stock of any of the Company's Subsidiaries or (b) any or all of the assets of the Company or any of its Subsidiaries, in each case other than sales of inventory in the Ordinary Course of Business. Notwithstanding the foregoing, Asset Dispositions shall not be deemed to include (i) a transfer of assets by the Company to a Restricted Subsidiary of the Company that (other than Permitted Partially Owned Subsidiaries) is a Guarantor, or by a Restricted Subsidiary of the Company that (other than Permitted Partially Owned Subsidiaries) is a Guarantor, to the Company or to another Restricted Subsidiary of the Company that (other than Permitted Partially Owned Subsidiaries) is a Guarantor, (ii) an issuance of Equity Interests by a Subsidiary of the Company to the Company or to a Restricted Subsidiary of the Company that (except for Permitted Partially Owned Subsidiaries) is a Guarantor, or by a Restricted Subsidiary of the Company to another Person to the extent permitted by SECTION 5.08(B), (iii) a Restricted Payment that is permitted by the provisions of SECTION 5.02, (iv) a Permitted Investment, (v) any conversion of Cash Equivalents into cash or any other form of Cash Equivalents, (vi) any foreclosure on assets, (vii) sales or disposition of past due accounts receivable in the Ordinary Course of Business, (viii) transactions permitted under ARTICLE 6 hereof, (ix) grants of credits and allowances in the Ordinary Course of Business, (x) the sublease of real or personal property on commercially reasonable terms, (xi) trade-ins or exchanges of equipment or other fixed assets, (xii) the sale and leaseback of any assets within 180 days of the acquisition thereof, (xiii) sales of damaged, worn-out or obsolete equipment or Page 2 assets that, in the Company's reasonable judgment, are no longer either used or useful in the business of the Company or its Subsidiaries, or (xiv) sales of other assets for aggregate consideration of less than $1 million with respect to any transaction or series of related transactions, provided the total consideration received for all assets sales under this clause (xiv) does not exceed for any such fiscal year 5% of Consolidated Tangible Assets at the beginning of any fiscal year. "ASSET SALE OFFER" is defined in SECTION 4.10(A). "ATTRIBUTABLE DEBT" in respect of a Sale and Leaseback Transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such Sale and Leaseback Transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "BANKRUPTCY LAW" means Title 11 of the United States Code or any similar federal or state bankruptcy, insolvency, reorganization or other law for the relief of debtors. "BOARD" AND "BOARD OF DIRECTORS" means, as to any Person, the board of directors, the board of advisors (or similar governing body) of such Person. "BUSINESS DAY" means any day other than a Legal Holiday. "CAPITAL EXPENDITURES" means, for any period and with respect to any Person, the aggregate of all expenditures by such Person and its Subsidiaries for the acquisition or leasing of fixed or capital assets or additions to fixed or capital assets (including replacements, capitalized repairs and improvements during such period) which should be capitalized under GAAP on a consolidated balance sheet of such Person and its Subsidiaries. "CAPITALIZED LEASE OBLIGATION" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "CAPITAL STOCK" of any Person means any and all shares, interests, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "CASH EQUIVALENTS" means (i) marketable direct obligations issued or unconditionally guaranteed by the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one (1) year from the date of Page 3 acquisition thereof; (ii) commercial paper maturing no more than one (1) year from the date of acquisition and, at the time of acquisition, having a rating of at least A-1 from Standard & Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; (iii) certificates of deposit or bankers' acceptances maturing within one (1) year from the date of acquisition thereof issued by, or overnight reverse repurchase agreements from, any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia having combined capital and surplus of not less than $250,000,000; (iv) time deposits maturing no more than thirty (30) days from the date of creation thereof with commercial banks having membership in the Federal Deposit Insurance Corporation and having combined capital and surplus of not less than $250,000,000; (v) deposits or investments in mutual or similar funds offered or sponsored by brokerage or other companies having membership in the Securities Investor Protection Corporation and having combined capital and surplus of not less than $250,000,000; and (vi) other money market accounts or mutual funds which invest primarily in the securities described above. "CHANGE OF CONTROL" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or more related transactions, of all or substantially all of the properties and assets of Holdings and its Subsidiaries taken as a whole, or of the Company and its Subsidiaries taken as a whole, to any Person or "person" (as such term is used in Section 13(d)(3) of the Exchange Act), other than the Principals, Management Investors or their Related Parties; (ii) the adoption of a plan relating to the liquidation or dissolution of Holdings or the Company; (iii) the consummation of any transaction (including, without limitation, any merger or consolidation), as a result of which, (x) prior to a Note Registration, (1) the Principals, Management Investors and their Related Parties beneficially own and control, directly or indirectly, less than 51% of the aggregate voting interest attributable to all outstanding Capital Stock of Holdings, or (2) GEI and its Affiliates beneficially own, directly or indirectly, less than 25% of the aggregate voting interest attributable to all outstanding Capital Stock of Holdings, or (y) Holdings ceases to own directly 100% of the outstanding Equity Interests of the Company, or (z) any Person or "group" (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act), other than the Principals, Management Investors or their Related Parties, shall have acquired, directly or indirectly, beneficial ownership of 35% or more on a fully diluted basis of the aggregate voting interest attributable to all outstanding Capital Stock of Holdings or the Company or (iv) the first day on which a majority of the members of the Board of Directors of Holdings are not Continuing Directors. "CHANGE OF CONTROL OFFER" is defined in SECTION 4.09(A). "CHANGE OF CONTROL PAYMENT" is defined in SECTION 4.09(A). "CHANGE OF CONTROL PAYMENT DATE" is defined in Section 4.09(b)(ii). "CLOSING" is defined in the Purchase Agreement. "CLOSING DATE" means September 20, 2000. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. Page 4 "COMMISSION" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Exchange Act, the body performing such duties at such time. "COMMON STOCK" of any Person means any and all shares, units, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock whether outstanding on the Closing Date or issued after the Closing Date, and includes, without limitation, all series and classes of such common stock. "COMPANY" is defined in the preamble. "CONSOLIDATED" or "CONSOLIDATED" (including the correlative term "CONSOLIDATING") or on a "CONSOLIDATED BASIS," when used with reference to any financial term in this Indenture (but not when used with respect to any Tax Return or tax liability), means the aggregate for two or more Persons of the amounts signified by such term for all such Persons, with inter-company items eliminated in accordance with GAAP. "CONSOLIDATED EBITDA" means for the applicable period of measurement, the Consolidated Net Income of the Company and its Subsidiaries on a consolidated basis, PLUS, without duplication, the following to the extent deducted in calculating such Consolidated Net Income: (i) Consolidated Interest Expense for such period, PLUS (ii) provisions for taxes based on income, PLUS (iii) total depreciation expense, PLUS (iv) total amortization expenses, PLUS (v) other non-cash items reducing Consolidated Net Income (excluding any such non-cash item to the extent that it represents an accrual or reserve for potential cash items in any future period or amortization of a prepaid cash item but, notwithstanding anything to the contrary herein, including without limitation, reserves for lease expenses and charges and expenses related to the closure of hospitals to the extent not paid in cash), PLUS (vi) non-recurring costs incurred by Holdings and its Subsidiaries in 1999 relating to year 2000 computer matters, LESS other non-cash items increasing Consolidated Net Income (excluding any such non-cash item to the extent it represents the reversal of an accrual or reserve for potential cash item in any prior period). "CONSOLIDATED INTEREST COVERAGE RATIO" means, as of any date of determination, the ratio of (a) Adjusted EBITDA for the applicable period ending on such date to (b) Consolidated Interest Expense for such applicable period. "CONSOLIDATED INTEREST EXPENSE" means for the applicable period of measurement of the Company and its Subsidiaries on a consolidated basis, the aggregate interest expense (whether or not paid in cash) for such period (including all commissions, discounts, fees and other charges in connection with standby letters of credit and similar instruments, but excluding all amortization of financing fees and other charges incurred by the Company and its Subsidiaries in connection with the issuance of the Notes and the borrowings under the Credit Agreement) for the Company and its Subsidiaries on a consolidated basis, MINUS interest income of the Company and its Subsidiaries for such period, on a consolidated basis. Page 5 "CONSOLIDATED NET INCOME" means for any period the net income (or loss) of the Company and its Subsidiaries on a consolidated basis for such period determined in conformity with GAAP, but excluding the following clauses (a) through (g) to the extent included in the computation thereof: (a) that percentage of net income (or loss) of each Subsidiary of the Company attributable to minority interests in such Subsidiary; (b) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of the Company or is merged into or consolidated with the Company or that Person's assets are acquired by the Company or any of its Subsidiaries; (c) the income or (loss) of any Person (other than a Subsidiary) in which such Person has an interest except to the extent of the amount of dividends or other distributions actually paid to the Company or any of its Subsidiaries; (d) the income of any Subsidiary of the Company to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary; (e) any after-tax gains or losses attributable to Asset Dispositions or returned surplus assets of any pension plan; and (f) all fees and expenses incurred in connection with the Merger and the financing thereof, including all non-compete payments, employment contract termination payments, deferred payments for restricted Capital Stock of Holdings and stay bonuses made in connection with the Merger identified on Schedule 1(n) to the Purchase Agreement, and all premiums paid to retire debt in connection with the Merger, and (g) (to the extent not included in clauses (a) through (f) above) (i) any net extraordinary gains or net extraordinary losses or (ii) net non-recurring gains or non-recurring losses to the extent attributable to Asset Dispositions, the exercise of options to acquire Capital Stock and the extinguishment of Indebtedness. "CONSOLIDATED NET WORTH" means, with respect to any Person as of any date, the sum of (i) the equity of the common equity holders of such Person and its Subsidiaries on a consolidated basis as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Capital Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date of this Indenture in the book value of any asset owned by such Person or a Subsidiary of such Person and (y) all unamortized debt discount and expense and unamortized deferred charges as of such date, all off the foregoing determined in accordance with GAAP. "CONSOLIDATED TANGIBLE ASSETS" as of any date of determination means the total amount of assets (less accumulated depreciation and amortization, allowances for doubtful receivables, other applicable reserves and other properly deductible items) which would appear on a consolidated balance sheet of the Company and its Subsidiaries, determined on a Consolidated basis in accordance with GAAP, and after deducting therefrom, to the extent otherwise included, the amounts of: (a) minority interests in Subsidiaries held by Persons other than the Company or a Restricted Subsidiary; (b) excess of cost over fair value of assets of Page 6 businesses acquired, as determined in good faith by the Board of Directors of the Company; (c) any revaluation or other write-up in book value of assets subsequent to the Closing Date as a result of a change in the method of valuation in accordance with GAAP consistently applied; (d) unamortized debt discount and expenses and other unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, licenses, organization or developmental expenses and other intangible items; (e) treasury stock; and (f) cash set apart and held in a sinking or other analogous fund established for the purpose of redemption or other retirement of Capital Stock. "CONTINUING DIRECTORS" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors immediately after consummation of the Merger or (ii) was nominated for election or elected to such Board of Directors with the approval, recommendation or endorsement of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "COVERAGE RATIO TEST" is defined in SECTION 5.04(A). "CREDIT AGREEMENT" means the Credit and Guaranty Agreement, dated as of the Closing Date, by and among the Company, Holdings and certain Subsidiaries of the Company, as guarantors, the lenders party thereto from time to time, Goldman Sachs Credit Partners L.P., as Sole Lead Arranger and as Sole Syndication Agent, and Wells Fargo Bank, N.A., as Administrative Agent and as Collateral Agent, consisting of the following facilities: (i) $250 million aggregate principal amount of term loans and (ii) a $50 million revolving credit facility, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreement or agreements may be amended (including any amendment and restatement thereof), supplemented, replaced, restructured, Refinanced or otherwise modified from time to time, including any amendment, supplement, modification or agreement adding Subsidiaries of the Company as additional borrowers or guarantors thereunder or extending the maturity of, Refinancing, replacing or otherwise restructuring all or any portion of the Indebtedness under such agreement or any successor or replacement agreement, and whether by the same or any other agent, lender or group of lenders or one or more agreements; provided that in no event may such agreement be amended (including any amendment and restatement thereof), supplemented, replaced, restructured, Refinanced or otherwise modified to increase the amount of available borrowings (except (x) for increases not in excess of the actual amount of accrued interest thereon plus prepayment premiums and fees and expenses associated with a Refinancing, replacement or other restructuring thereunder, (y) as permitted to be Incurred under SECTIONS 5.04(A), 5.04(B)(III), 5.04(B)(VII) and 5.04(B)(XIII), and (z) for other increases not to exceed $25 million in principal amount). "CREDIT DOCUMENTS" means the Credit Agreement, any Currency Agreement or Interest Swap Obligations, and all certificates, instruments, financial and other statements and other documents and agreements made or delivered from time to time in connection therewith and related thereto. Page 7 "CURRENCY AGREEMENT" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Subsidiary of the Company against fluctuations in currency values. "CUSTODIAN" is defined in SECTION 7.01. "DEFINITIVE NOTE" is defined in the APPENDIX. "DEFAULT" means any event, act or condition that is, or with the giving of notice, lapse of time or both would constitute, an Event of Default. "DEPOSITARY" is defined in the APPENDIX. "DESIGNATED SENIOR INDEBTEDNESS" of the Company or any Guarantor means (a) Indebtedness under or in respect of the Credit Agreement or a Guarantee thereof of the Company or such Guarantor, as applicable, and (b) any other Senior Indebtedness of the Company or such Guarantor that, at the date of determination, the holders thereof have loans outstanding and/or are committed to lend an aggregate amount of $7,500,000 or more and is specifically designated by the Company or such Guarantor in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness." "DISQUALIFIED CAPITAL STOCK" means any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event, matures (excluding any maturity as the result of an optional redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the sole option of the holder thereof (except, in each case, upon the occurrence of a Change of Control), on or prior to the date that is 91 days after the Stated Maturity of the Notes. "DOMESTIC SUBSIDIARY" of any Person means a Subsidiary of such Person (i) which is organized under the laws of the United States of America, any State thereof or the District of Columbia or (ii) which conducts a substantial portion of its business in or derives a substantial portion of its revenues from sources outside the United States of America. "EARN-OUT OBLIGATIONS" means any unsecured contingent liability of Holdings owed to any seller in connection with a Permitted Acquisition that (a) constitutes a portion of the purchase price for such Permitted Acquisition but is not an amount certain on the date of incurrence thereof and is not subject to any right of acceleration by such seller, and (b) is only payable upon the achievement of performance standards by the Person or other property acquired in such Permitted Acquisition and in an amount based upon such achievement provided that the maximum aggregate amount of such liability shall be fixed at a specified amount on the date of such Permitted Acquisition; provided, however, that the term Earn-Out Obligations shall also include those obligations set forth in Schedule 1(oo) to the Purchase Agreement. Page 8 "EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "EQUITY OFFERING" means any underwritten public offering of Qualified Capital Stock of Holdings, whether on a primary or secondary basis, pursuant to an effective registration statement filed under the Securities Act. "EVENT OF DEFAULT" is defined in SECTION 7.01. "EXCESS PROCEEDS" is defined in SECTION 5.05(B). "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCHANGE AND REGISTRATION RIGHTS AGREEMENT" is defined in the APPENDIX. "EXCHANGE GUARANTEES" means the guarantees issued in the Registered Exchange Offer. "EXCHANGE NOTES" is defined in the recitals. "EXEMPT SUBSIDIARIES" shall mean those Permitted Partially Owned Subsidiaries listed on Schedule 1(c) of the Purchase Agreement that are not Guarantors. "EXISTING INDEBTEDNESS" is defined in the Purchase Agreement. "FAIR MARKET VALUE" means, with respect to any asset or property, the price which could be negotiated in an arm's-length transaction between a willing seller and a willing and able buyer. "FISCAL QUARTER" means a fiscal quarter of any Fiscal Year. "FISCAL YEAR" means the fiscal year of Holdings and its Subsidiaries ending on December 31 of each calendar year. "GAAP" means United States generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession. "GEI" means Green Equity Investors III, L.P., a Delaware limited partnership. "GLOBAL NOTES LEGEND" is defined in the APPENDIX. "GOVERNMENTAL AUTHORITY" means (a) the government of the United States of America or any State or other political subdivision thereof, (b) any government or political Page 9 subdivision of any other jurisdiction in which the Company or any of its Subsidiaries conducts all or any part of its business, or which properly asserts jurisdiction over any properties of the Company or any of its Subsidiaries or (c) any entity properly exercising executive, legislative, judicial, regulatory or administrative functions of any such government. "GUARANTEE" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "GUARANTOR" is defined in the preamble. "GUARANTOR SENIOR INDEBTEDNESS" means, with respect to any Guarantor, all obligations for the principal, premium, if any, interest (including any interest accruing on or after the filing of any petition in bankruptcy or for reorganization at the rate provided for in the documentation with respect thereto, whether or not such claim for post-petition interest is allowed in such proceeding), penalties, fees, indemnification, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness of such Guarantor, whether outstanding on the Closing Date or thereafter Incurred including, without limitation, in respect of: (i) all monetary obligations of every nature of such Guarantor under, or with respect to, the Credit Documents, including, without limitation, obligations to pay principal, premium, if any, and interest (including any interest accruing on or after the filing of any petition in bankruptcy or for reorganization at the rate provided for in the documentation with respect thereto, whether or not such claim for post-petition interest is allowed in such proceeding) on, reimbursement obligations under letters of credit, fees, expenses and indemnities (including Guarantees thereof) and all Obligations in respect thereof; (ii) any Obligations of such Guarantor evidenced by bonds, debentures, notes or other similar instruments; (iii) any Capitalized Lease Obligations of such Guarantor; (iv) any Obligation of such Guarantor arising from any Guarantee by such Guarantor of Senior Indebtedness or of Guarantor Senior Indebtedness of another Guarantor; (v) all Interest Swap Obligations (and Guarantees thereof); and (vi) all Obligations (and Guarantees thereof) under Currency Agreements, in each case whether outstanding on the Closing Date or thereafter Incurred. Notwithstanding the foregoing, "GUARANTOR SENIOR INDEBTEDNESS" shall not include: (i) any Indebtedness (other than with respect to any Guarantee Obligations with respect to Senior Indebtedness of the Company) of such Guarantor to a Subsidiary of such Guarantor; (ii) Indebtedness (other than with respect to any Guarantee Obligations with respect to Senior Indebtedness of the Company or with respect to other Guarantor Senior Indebtedness) to, or guaranteed on behalf of, any shareholder, unitholder, director, officer or employee of such Guarantor or any Subsidiary of such Guarantor (including, without limitation, amounts owed for compensation) other than a shareholder or unitholder who is also a lender (or an Affiliate of a lender) under the Credit Agreement; (iii) Indebtedness to trade creditors and other amounts Incurred in connection with obtaining goods, materials or services; (iv) Indebtedness represented by Disqualified Capital Stock; (v) that portion of any Indebtedness Incurred in violation of SECTION 5.04 (but, as to any such obligation, no such violation shall be deemed to exist for purposes of this clause (v) if the holder(s) of such obligation or their representative shall have received an Officers' Certificate of the Company to Page 10 the effect that the Incurrence of such Indebtedness does not (or, in the case of revolving credit Indebtedness, that the Incurrence of the entire committed amount thereof at the date on which the initial borrowing thereunder is made would not) violate such provisions of this Indenture); (vi) Indebtedness which, when Incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company; and (vii) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of such Guarantor other than the Indebtedness under this Indenture. "HOLDER" means a Person in whose name a Note is registered on the Registrar. "HOLDINGS" means Veterinary Centers of America, Inc., a Delaware corporation. "HOLDINGS EXCHANGE AND REGISTRATION RIGHTS AGREEMENT" means that certain Exchange and Registration Rights Agreement, dated as of the Closing Date, by and among Holdings and the Purchasers. "HOLDINGS INDENTURE" means that certain Indenture, dated as of the date hereof, by and between Holdings and Chase Manhattan Bank and Trust Company, National Association, trustee thereunder. "HOLDINGS NOTES" means those certain Senior Notes due 2010 of Holdings issued on the Closing Date in an original principal amount of $100,000,000, any Exchange Notes (as defined in the Holdings Purchase Agreement) or any PIK Notes (as defined in the Holdings Indenture) issued after the Closing Date pursuant to the terms of the Holdings Indenture, and any such notes issued in exchange or replacement therefor, including any such notes issued in exchange for the Holdings Notes pursuant to the Holdings Exchange and Registration Rights Agreement. "HOLDINGS PURCHASE AGREEMENT" means the Purchase Agreement dated as of the Closing Date, by and among Holdings and the Purchasers. "INCUR" is defined in SECTION 5.04(A). "INDEBTEDNESS" means, with respect to any Person, without duplication: (i) all Obligations of such Person for borrowed money (including, without limitation, Senior Indebtedness); (ii) all Obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (iii) all Capitalized Lease Obligations of such Person; (iv) all Obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all Obligations under any title retention agreement, in each case to the extent the purchase price is due more than six (6) months from the date the obligation is Incurred (but excluding trade accounts payable and other accrued liabilities arising in the ordinary course of business); (v) all Obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction; (vi) Guarantees and other contingent obligations in respect of Indebtedness referred to in clauses (i) through (v) above and clause (viii) below; (vii) all Obligations of any other Person of the type referred to in clauses (i) through (v) which are secured by any Lien on any property or asset of such Person, the amount of such Page 11 Obligation being deemed to be the lesser of the fair market value of such property or asset or the amount of the Obligation so secured; and (viii) all Obligations under Currency Agreements and all Interest Swap Obligations of such Person. "INDENTURE" is defined in the preamble. "INITIAL NOTES" is defined in the recitals. "INSTITUTIONAL ACCREDITED INVESTOR" is defined in the APPENDIX. "INTEREST PAYMENT DATE" is defined in EXHIBIT A. "INTEREST SWAP OBLIGATIONS" means the Obligations of any Person pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. "INVESTMENT" means (i) any direct or indirect purchase or other acquisition by the Company or any of its Subsidiaries of any beneficial interest in, including stock, partnership interest or other Equity Interests of, or ownership interest in, any other Person (other than the Company or any other Person who was a Restricted Subsidiary of the Company at the time of such Investment); and (ii) any direct or indirect loan, advance or capital contribution by the Company or any of its Subsidiaries to any other Person, including all indebtedness and accounts receivable from that other Person that did not arise from sales to or services provided to that other Person in the Ordinary Course of Business. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment but less all cash distributions constituting a return of capital. "LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking institutions in New York or California or at a place of payment are authorized by law, regulation or executive order to remain closed. If any payment date in respect of the Notes is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "LIEN" means any lien, mortgage, pledge, security interest, charge, encumbrance or governmental levy or assessment of any kind, whether voluntary or involuntary (including any conditional sale or other title retention agreement and any lease in the nature thereof). "MANAGEMENT INVESTORS" means Continuing Stockholders (as defined in the Merger Agreement) and initial holders of Common Stock of Holdings reserved for future issuance to employees of Holdings and its Subsidiaries as set forth on SCHEDULE 1(D) to the Holdings Purchase Agreement. Page 12 "MANAGEMENT SERVICES AGREEMENT" means that certain Management Services Agreement, dated as of the Closing Date, by and between Holdings and the Company, on the one hand, and Leonard Green & Partners, L.P., on the other. "MATERIAL ADVERSE EFFECT" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Company and its Subsidiaries taken as a whole or (b) the material impairment of the ability of the Company or any Guarantors that constitute a Material Subsidiary to perform in any material respect its material obligations under any Transaction Document to which it is a party or of any Holder to enforce any Transaction Document in any material respect or collect any of the Obligations thereunder. "MATERIAL SUBSIDIARY" means one or more Subsidiaries of the Company which individually or in the aggregate shall have accounted for more than five percent (5%) of Consolidated EBITDA for the four-Fiscal Quarter period most recently ended. "MATURITY", when used with respect to any Note, means the date on which the principal of such Note becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise (including in connection with any offer to purchase that this Indenture requires the Company to make). "MERGER" means the merger of Merger Corp. with and into Holdings as contemplated by the Merger Agreement. "MERGER AGREEMENT" means that certain Amended and Restated Agreement and Plan of Merger, dated as of August 11, 2000, by and among Holdings, the Company and Merger Corp. "MERGER CORP." means Vicar Recap, Inc., a Delaware corporation formed by GEI "NET PROCEEDS" means cash proceeds actually received by the Company or any of its Subsidiaries from any Asset Disposition (including insurance proceeds, awards of condemnation, and payments under notes or other debt securities received in connection with any Asset Disposition), net of (a) the costs of such sale, issuance, lease, transfer or other disposition (including Taxes attributable to such sale, lease or transfer), (b) amounts applied to repayment of Indebtedness (other than revolving credit Indebtedness under the Credit Agreement, without a corresponding reduction in the revolving credit commitment) secured by a Lien on the asset or property disposed of, (c) if such Asset Disposition involves the sale of a discrete business or product line, any accrued liabilities of such business or product line required to be paid or retained by the Company or any of its Subsidiaries as part of such disposition and (d) appropriate amounts to be provided by the Company or a Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with an Asset Disposition and retained by Holdings or such Subsidiary, as the case may be, after such Asset Disposition, including, without limitation, pension and benefit liabilities, liabilities related to environmental matters or liabilities under any indemnification obligations associated with such Asset Disposition. Page 13 "NOTATION OF GUARANTEE" is defined in SECTION 12.07. "NOTE REGISTRATION" shall mean the first to occur of (i) the consummation of a Registered Exchange Offer and (ii) the effectiveness of a Shelf Registration Statement filed with the Commission. "NOTES" is defined in the recitals. "NOTES CUSTODIAN" is defined in the APPENDIX. "NOTICE OF DEFAULT" is defined in SECTION 8.05. "OBLIGATIONS" means all obligations for principal, premium, interest, penalties, fees, indemnification, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "OFFER AMOUNT" is defined in SECTION 4.10(A). "OFFER PERIOD" is defined in SECTION 4.10(A). "OFFICERS' CERTIFICATE" of the Company means a certificate signed on behalf of the Company by the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, any Vice President, the Chief Financial Officer, the Chief Accounting Officer, Treasurer, the Assistant Treasurer, Controller, the Secretary or an Assistant Secretary (or any such other officer that performs similar duties) of the Company. One of the officers signing an Officers' Certificate given pursuant to SECTION 4.06 shall be the principal executive, financial or accounting officer or treasurer of the Company. "OPINION OF COUNSEL" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company, a Guarantor or the Trustee. "ORDINARY COURSE OF BUSINESS" means, in respect of any transaction involving the Company or any Subsidiary of the Company, the ordinary course of such Person's business, as conducted by any such Person in accordance with past practice and undertaken by such Person in good faith and not for purposes of evading any covenant or restriction in this Indenture, the Purchase Agreement, the Notes and the related documents. "PAYING AGENT" is defined in SECTION 2.03. "PAYMENT BLOCKAGE PERIOD" is defined in SECTION 11.03. "PERMITS" means all licenses, permits, certificates of need, approvals and authorizations from all Governmental Authorities required to lawfully conduct a business. "PERMITTED ACQUISITION" means the purchase by the Company or a Subsidiary of the Company of all or substantially all of the assets of a Person whose primary business is the Page 14 same, related, ancillary or complementary to the business in which the Company and its Subsidiaries were engaged on the date of this Indenture, or any Investment by the Company or any Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person and each Subsidiary of such Person becomes a Restricted Subsidiary of the Company and (a) if a wholly-owned Domestic Subsidiary, a Guarantor or (b) if a less than wholly-owned Domestic Subsidiary, a Permitted Partially Owned Subsidiary, in each case whose primary business is the same, related, ancillary or complementary to the business in which the Company and its Subsidiaries were engaged on the date of this Indenture or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, a Restricted Subsidiary of the Company and whose primary business is the same, related, ancillary or complementary to the business in which the Company and its Subsidiaries were engaged on the date of this Indenture; PROVIDED that at the time of such Investment or purchase, no Default or Event of Default exists or would be caused upon the consummation thereof. "PERMITTED INVESTMENTS" means: (i) any Investment in (including, without limitation, loans and advances to) the Company or a Restricted Subsidiary of the Company that (other than in the case of Permitted Partially Owned Subsidiaries) is a Guarantor and whose primary business is the same, related, ancillary or complementary to the business in which the Company and its Subsidiaries were engaged in on the date of such Investment; (ii) any Investment in Cash Equivalents or the Notes or the Exchange Notes; (iii) any Investment related to or arising out of a Permitted Acquisition; (iv) any Investment made in the Ordinary Course of Business which results from the receipt of non-cash consideration from an asset sale made pursuant to and in compliance with the provisions of SECTION 5.05 or from any sale or other disposition of assets not constituting an Asset Disposition hereunder; (v) loans and advances (a) to employees for emergency, moving, entertainment, travel and other business expenses in the Ordinary Course of Business or (b) to Holdings if the proceeds of such loans and advances are used by Holdings to make loans or advances to employees contemplated by clause (a) provided the total loans and advances under this clause (v) shall not exceed $1,500,000 in the aggregate at any time outstanding; (vi) Investments received as part of the settlement of litigation or in satisfaction of extensions of credit to any Person otherwise permitted under this Indenture pursuant to the reorganization, bankruptcy or liquidation of such Person or a good faith settlement of debts by said Person; Page 15 (vii) any Investment existing on the date of this Indenture and listed on Schedule 1(pp) to the Purchase Agreement; (viii) Investments of a Person or any of its Subsidiaries existing at the time such Person becomes a Subsidiary of the Company or at the time such Person merges or consolidates with the Company or any of its Subsidiaries, in either case in compliance with this Indenture; PROVIDED that such Investments were not made by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Subsidiary of the Company or such merger or consolidation; (ix) Investments made in connection with purchase price adjustments, contingent purchase price payments or other Earn-Out Obligations paid in connection with Investments otherwise permitted under this Indenture; (x) Investments in securities received in settlement of trade obligations in the Ordinary Course of Business; (xi) loans and advances (a) not to exceed $1,500,000 at any time outstanding to employees of Holdings or its Subsidiaries for the purpose of funding the purchase of Capital Stock of Holdings by such employees or (b) to Holdings if the proceeds of such loans or advances are used by Holdings to make loans or advances contemplated by clause (a) above; and (xii) other Investments in Persons who are not Affiliates of the Company or any of its Subsidiaries not to exceed $5 million in the aggregate at any time outstanding. "PERMITTED PARTIALLY OWNED SUBSIDIARY" means the Exempt Subsidiaries and each other Subsidiary designated as a Permitted Partially Owned Subsidiary by the Company in writing to the Trustee, provided (i) with respect to each Permitted Partially Owned Subsidiary other than Exempt Subsidiaries, Capital Stock representing 70% or more of the aggregate voting and economic interests in such Subsidiary are directly or indirectly owned, beneficially and of record, by the Company, (ii) the Company shall use its commercially reasonable efforts to cause each Subsidiary to become a Guarantor, (iii) any Capital Stock not owned directly or indirectly by the Company is owned by one or more licensed veterinarians (or one or more professional corporations owned by such licensed veterinarians) who will be actively involved in the business of such Subsidiary, and (iv) at the time of designation of any Permitted Partially Owned Subsidiary as such, that portion of Consolidated EBITDA attributable to all Permitted Partially Owned Subsidiaries (including the Subsidiary proposed to be obligated as such) does not represent more than 10% of the Consolidated EBITDA for the four-Fiscal Quarter period most recently ended. "PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to Refinance other Indebtedness of any such Persons; PROVIDED, HOWEVER, that (i) the principal amount of such Permitted Refinancing Indebtedness does not exceed the principal amount plus Page 16 accrued interest and premium, if any (set forth in the original instrument representing such Indebtedness), of the Indebtedness so Refinanced (plus the amount of reasonable fees and expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date on or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, at the time of such Refinancing, the Indebtedness being Refinanced; (iii) if the Indebtedness being Refinanced is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being Refinanced; and (iv) such Indebtedness is Incurred either by the Company or by the Subsidiary which is the obligor on the Indebtedness being Refinanced. "Permitted Refinancing Indebtedness" shall not include Indebtedness under the Credit Agreement which may be Refinanced in accordance with the definition thereof. "PERSON" means any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or government or agency or political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "PREFERRED STOCK" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "PRINCIPALS" means GEI and certain entities affiliated with (i) Trust Company of the West and Hamilton Lane Advisors and (ii) the following limited partners in GEI: CalPERS, Caisse De Depot, Procific and PPM America. "PURCHASE DATE" is defined in SECTION 4.10(A). "PURCHASE AGREEMENT" means the Purchase Agreement, dated as of the Closing Date, by and among the Company, the Guarantors and the Purchasers. "PURCHASERS" is defined in the APPENDIX. "QIB" is defined in the APPENDIX. "QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified Capital Stock. "REDEMPTION DATE," when used with respect to any Note to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture and the Notes. "REDEMPTION PRICE," when used with respect to any Note to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture and the Notes. Page 17 "REFINANCE" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "REFINANCED" and "REFINANCING" shall have correlative meanings. "REGISTERED EXCHANGE OFFER" is defined in the APPENDIX. "REGISTRAR" is defined in SECTION 2.03. "REGISTRATION DEFAULT" is defined in EXHIBIT A. "REGULAR RECORD DATE" is defined in EXHIBIT A. "REGULATION S" is defined in the APPENDIX. "RELATED PARTY" with respect to any Principal means (i) any controlling stockholder of such Principal, any Subsidiary of such Principal or any general partner of such Principal, and (ii) any Affiliate of such Principal and any investment fund or investment partnership managed by any Person that is, or is an Affiliate of, such Principal to the extent such Affiliate or other investment fund or investment partnership makes an Investment in Holdings through the acquisition of Capital Stock from Holdings, and with respect to any Management Investor, means a revocable inter-vivos trust established by such Person, such Person's estate spouse, child, parent or other relative (by blood, marriage or adoption) of the first degree, or any trust established for the benefit of any of the foregoing. "REPRESENTATIVE" means the indenture trustee or other trustee, agent or representative in respect of any Designated Senior Indebtedness; PROVIDED that if, and for so long as, any Designated Senior Indebtedness lacks such a representative, then the Representative for such Designated Senior Indebtedness shall at all times constitute the holders of a majority in outstanding principal amount of such Designated Senior Indebtedness in respect of any Designated Senior Indebtedness. In the case of Indebtedness under the Credit Agreement, the Representative shall mean Wells Fargo Bank, N.A. (333 South Grand Avenue, Los Angeles, California 90071, Attention: S. Michael St. Geme (telecopier no.: (213) 628-9694)), or any successor thereto under the Credit Agreement of which the Trustee is notified. "REQUIRED HOLDERS" means Holders holding more than 50% of the aggregate outstanding principal amount of the outstanding Notes (exclusive of Notes then owned directly or indirectly by Holdings, the Company or any of their respective Subsidiaries or Affiliates). "RESTRICTED INVESTMENT" means an Investment other than a Permitted Investment. "RESTRICTED NOTES LEGEND" is defined in the APPENDIX. "RESTRICTED PAYMENTS" is defined in SECTION 5.02. "RESTRICTED SUBSIDIARY" means either a Wholly Owned Subsidiary or a Permitted Partially Owned Subsidiary. Page 18 "RULE 501" is defined in the APPENDIX. "RULE 144A" is defined in the APPENDIX. "SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Company or a Subsidiary of any property, whether owned by the Company or any Subsidiary at the Closing Date or later acquired, which has been or is to be sold or transferred by the Company or such Subsidiary to such Person or any other Person from whom funds have been or are to be advanced by such Person on the security of such property. "SECURITIES ACT" is defined in the APPENDIX. "SELLER NOTES" means, collectively, any unsecured promissory notes issued by Holdings to any seller or sellers in connection with a Permitted Acquisition which are permitted to be incurred under Section 5.04(b)(x) of the Holdings Indenture. "SENIOR INDEBTEDNESS" means (i) the principal of (and premium, if any) and interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not such claim for post-petition interest is allowed in such proceeding) on, and penalties and any obligation of the Company for reimbursement (including attorneys' fees incurred in connection with any such proceeding, whether or not allowed in such proceeding), indemnities and fees relating to, and all other amounts owing under, the Credit Agreement, (ii) the principal of (and premium, if any) and interest on Indebtedness of the Company for money borrowed, whether incurred on or prior to the date of original issuance of the Notes or thereafter, and any amendments, renewals, extensions, modifications, refinancings and refundings of any such Indebtedness and (iii) Interest Swap Obligations entered into with respect to Indebtedness described in clauses (i) and (ii) above; PROVIDED, HOWEVER, that the following shall not constitute Senior Indebtedness: (1) any Indebtedness as to which the terms of the instrument creating or evidencing the same provide that such Indebtedness is not superior in right of payment to the Notes, (2) any Indebtedness as to which the terms of the instrument creating or evidencing the same provide that such Indebtedness is subordinated in right of payment in any respect to any other Indebtedness of the Company, (3) Indebtedness evidenced by the Notes or the Guarantees, (4) any Indebtedness owed to a Person when such Person is a Subsidiary of the Company, (5) any obligation of the Company arising from Disqualified Capital Stock of the Company, (6) any portion of any Indebtedness which is incurred in violation of this Indenture, (7) Existing Indebtedness, and (8) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company. "SENIOR NONMONETARY DEFAULT" is defined in SECTION 11.03. "SENIOR PAYMENT DEFAULT" is defined in SECTION 11.03. "SHELF REGISTRATION STATEMENT" is defined in the APPENDIX. Page 19 "SPECIAL INTEREST" is defined in EXHIBIT A. "SPECIFIED ASSETS" means the Company's investments specified in numbers 1 and 2 in Schedule 1(pp) to the Purchase Agreement. "STATED MATURITY," when used with respect to any Note or any installment of interest thereon, means the date specified in this Indenture or such Note as the scheduled fixed date on which the principal amount of such Note or such installment of interest is due and payable and shall not include any contingent obligation to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for payment thereof. "STATED MATURITY DATE" is defined in EXHIBIT A. "STOCKHOLDERS AGREEMENT" means that certain Stockholders Agreement, dated as of the Closing Date, by and among Holdings, the Purchasers, the Principals and certain Management Investors. "SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company or any of its Subsidiaries which is expressly subordinated to and junior to the payment and performance of the Notes or any such Subsidiary's guarantee, as applicable, of the Notes. "SUBORDINATED OBLIGATIONS" is defined in SECTION 11.01. "SUBSIDIARY" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (A) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (B) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). Any Person becoming a Subsidiary of Holdings after the date of this Indenture should be deemed to have Incurred all of its outstanding Indebtedness on the date it becomes a Subsidiary. "SUCCESSOR COMPANY" is defined in SECTION 6.01. "SUPPLEMENTAL GUARANTEES" means Guarantees executed by future Domestic Subsidiaries of the Company pursuant to SECTION 4.11. "TAX RETURNS" means all reports and returns (including elections, declarations, disclosures, schedules, estimates and information returns) required to be filed with respect to Taxes. "TAXES" means all federal, state, local or foreign income, gross receipts, windfall profits, severance, property, production, sales, use, license, excise, franchise, employment, withholding or other taxes, duties or assessments of any kind whatsoever imposed on any Person, Page 20 together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties and includes any liability for Taxes of another Person by contract, as a transferee or successor, under Treasury regulation Section 1.1502-6 or analogous state, local or foreign law provision or otherwise. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. sections 77aaa-77bbbb), as amended from time to time. "TRANSACTION DOCUMENTS" is defined in the Purchase Agreement. "TRANSFER RESTRICTED NOTES" is defined in the APPENDIX. "TRIGGER DATE" is defined in the Exchange and Registration Rights Agreement. "TRUSTEE" is defined in the preamble. "TRUST OFFICER" means, when used with respect to the Trustee, the president, any vice president (whether or not designated by a number or a word or words added before or after the title "vice president"), the secretary, any assistant secretary, the treasurer, any assistant treasurer, or any other officer of the Trustee in its Corporate Trust Administration Department customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject. "UNITED STATES" shall have the meaning assigned to such term in Regulation S. "U.S. GOVERNMENT OBLIGATIONS" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and that are not callable or redeemable at the issuer's option. "WARRANT AGREEMENT" is defined in the Holdings Purchase Agreement. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (A) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (B) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Page 21 Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. SECTION 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. This Indenture is subject to the mandatory provisions of the TIA, which are incorporated by reference in and made a part of this Indenture. The following TIA terms have the following meanings: "indenture securities" means the Notes, the Exchange Notes, the Guarantees and the Exchange Guarantees. "indenture security holder" means a Holder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company, the Guarantors and any other obligor on the indenture securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule have the meanings assigned to them by such definitions. SECTION 1.03. RULES OF CONSTRUCTION. Unless the context otherwise requires: (a) a term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (c) "or" is not exclusive; (d) "including" means including without limitation; (e) "to" and "until" each mean "to but excluding"; (f) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein); (g) any reference herein to any Person shall be construed to include such Person's successors and assigns; Page 22 (h) words in the singular include the plural and words in the plural include the singular; (i) unsecured Indebtedness shall not be deemed to be subordinate or junior to Secured Indebtedness merely by virtue of its nature as unsecured Indebtedness; (j) the principal amount of any non-interest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date prepared in accordance with GAAP; and (k) the principal amount of any Preferred Stock shall be (i) the maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock, whichever is greater. ARTICLE 2. THE NOTES SECTION 2.01. FORM AND DATING. Provisions relating to the Initial Notes and the Exchange Notes to be issued in exchange for the Initial Notes or otherwise as provided in this Indenture are set forth in the Appendix, which is hereby incorporated in and expressly made a part of this Indenture. The Initial Notes and the Trustee's certificate of authentication relating thereto shall each be substantially in the form of Exhibit A hereto, which is hereby incorporated in and expressly made a part of this Indenture. The Exchange Notes and the Trustee's certificate of authentication relating thereto shall be substantially in the form of Exhibit B hereto, which is hereby incorporated in and expressly made a part of this Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company or any Guarantor is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Company). Each Note shall be dated the date of its authentication. The Notes shall bear interest as set forth in the first paragraph of the reverse side of the Notes. The Notes shall be issuable only in registered form without interest coupons and only in denominations of $1,000 (in principal amount at maturity) and multiples thereof. SECTION 2.02. EXECUTION AND AUTHENTICATION. One officer shall sign the Notes for the Company by manual or facsimile signature. If an officer whose signature is on a Note no longer holds that office at the time the Trustee authenticates the Note, the Note shall be valid nevertheless. A Note shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Note. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. Page 23 The Trustee shall, upon written direction of Holdings, authenticate and make available for delivery Notes as set forth in the Appendix. The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate the Notes. Any such appointment shall be evidenced by an instrument signed by a Trust Officer, a copy of which shall be furnished to the Company. Unless limited by the terms of such appointment, an authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as any Registrar, Paying Agent or agent for service of notices and demands. SECTION 2.03. REGISTRAR AND PAYING AGENT. (a) The Company shall maintain an office or agency, which shall be located in the Borough of Manhattan, The City of New York, where Notes may be presented for registration of transfer or for exchange (the "REGISTRAR") and an office or agency where Notes may be presented for payment (the "PAYING AGENT"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may have one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent, and the term "Registrar" includes any co-registrars. The Company initially appoints the Trustee as (i) Registrar and Paying Agent in connection with the Notes and (ii) the Notes Custodian with respect to the Global Exchange Notes (as defined in the Appendix). (b) The Company shall enter into an appropriate agency agreement with any Registrar or Paying Agent not a party to this Indenture, which shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to SECTION 8.07. The Company or any of its domestically organized Wholly Owned Subsidiaries may act as Paying Agent or Registrar. (c) The Company may remove any Registrar or Paying Agent upon written notice to such Registrar or Paying Agent and to the Trustee; PROVIDED, HOWEVER, that no such removal shall become effective until (i) acceptance of an appointment by a successor as evidenced by an appropriate agreement entered into the Company and such successor Registrar or Paying Agent, as the case may be, and delivered to the Trustee or (ii) notification to the Trustee that the Trustee shall serve as Registrar or Paying Agent until the appointment of a successor in accordance with clause (i) above. The Registrar or Paying Agent may resign at any time upon written notice to the Company and the Trustee; PROVIDED, HOWEVER, that the Trustee may resign as Paying Agent or Registrar only if the Trustee also resigns as Trustee in accordance with SECTION 8.08. SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. Prior to each due date of the principal of and interest on any Note, the Company shall deposit with the Paying Agent (or if the Company or a Subsidiary is acting as Paying Agent, segregate and hold in trust for the benefit of the Persons entitled thereto) a sum sufficient to pay such principal amount and interest when so becoming due. The Company shall require each Paying Agent (other than the Trustee) Page 24 to agree in writing that the Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal of or interest on the Notes and shall notify the Trustee of any default by the Company in making any such payment. If the Company or a Subsidiary of the Company acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by the Paying Agent. Upon complying with this SECTION 2.04, the Paying Agent shall have no further liability for the money delivered to the Trustee. SECTION 2.05. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, the Company shall furnish, or cause the Registrar to furnish, to the Trustee, in writing at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders. SECTION 2.06. TRANSFER AND EXCHANGE. The Notes shall be issued in registered form and shall be transferable only upon the surrender of a Note for registration of transfer and in compliance with the Appendix. When a Note is presented to the Registrar with a request to register a transfer, the Registrar shall register the transfer as requested if its requirements therefor are met. When Notes are presented to the Registrar with a request to exchange them for an equal principal amount of Notes of other denominations, the Registrar shall make the exchange as requested if the same requirements are met. To permit registration of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Notes at the Registrar's request. The Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with any transfer or exchange pursuant to this SECTION 2.06. The Company shall not be required to make and the Registrar need not register transfers or exchanges of Notes selected for redemption (except, in the case of Notes to be redeemed in part, the portion thereof not to be redeemed) or any Notes for a period of 15 days before a selection of Notes to be redeemed. Prior to the due presentation for registration of transfer of any Note, the Company, the Guarantors, the Trustee, the Paying Agent and the Registrar shall treat the Person in whose name a Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest, if any, on such Note and for all other purposes whatsoever, whether or not such Note is overdue, and none of the Company, any Guarantor, the Paying Agent, the Trustee or the Registrar shall be affected by notice to the contrary. Any Holder of a Global Exchange Note shall, by acceptance of such Global Exchange Note, agree that transfers of beneficial interest in such Global Exchange Note may be effected only through a book-entry system maintained by (a) the Holder of such Global Exchange Note (or its agent) or (b) any Holder of a beneficial interest in such Global Exchange Note, and that ownership of a beneficial interest in such Global Exchange Note shall be required to be reflected in a book entry. Page 25 All Notes issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Notes surrendered upon such transfer or exchange. SECTION 2.07. REPLACEMENT NOTES. If a mutilated Note is surrendered to the Registrar or if the Holder of a Note claims that the Note has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Note if the requirements of Section 8-405 of the New York Uniform Commercial Code are met, such that the Holder (a) satisfies the Company or the Trustee within a reasonable time after such Holder has notice of such loss, destruction or wrongful taking and the Registrar does not register a transfer prior to receiving such notification, (b) makes such request to the Company or the Trustee prior to the Note being acquired by a protected purchaser as defined in Section 8-303 of the New York Uniform Commercial Code (a "PROTECTED PURCHASER") and (c) satisfies any other reasonable requirements of the Trustee. If required by the Trustee or the Company, such Holder shall furnish an indemnity bond sufficient in the judgment of the Trustee to protect the Company, the Trustee, the Paying Agent and the Registrar from any loss that any of them may suffer if a Note is replaced, unless the Holder is an institution with a Consolidated Net Worth in excess of $100 million and contractually commits to protect the Company, the Trustee, the Paying Agent and the Registrar from any loss that any of them may suffer if a Note is replaced, in which case no such indemnity bond may be required. The Company and the Trustee may charge the Holder for their expenses in replacing a Note. In the event any such mutilated, lost, destroyed or wrongfully taken Note has become or is about to become due and payable, the Company in its discretion may pay such Note instead of issuing a new Note in replacement thereof. Every replacement Note is an additional obligation of the Company. The provisions of this SECTION 2.07 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, lost, destroyed or wrongfully taken Notes. SECTION 2.08. OUTSTANDING NOTES. Notes outstanding at any time are all Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this SECTION 2.08 as not outstanding. Subject to SECTION 13.06, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note. If a Note is replaced pursuant to SECTION 2.07, it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that the replaced Note is held by a protected purchaser. If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a Redemption Date or maturity date money sufficient to pay all the principal amount and interest and Special Interest, if any, payable on that date with respect to the Notes (or portions thereof) to be redeemed or maturing, as the case may be, and the Paying Agent is not prohibited from paying such money to the Holders on that date pursuant to the terms of this Page 26 Indenture, then on and after that date such Notes (or portions thereof) cease to be outstanding and interest on them ceases to accrue. SECTION 2.09. TEMPORARY NOTES. Until Definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of Definitive Notes but may have variations that the Company considers appropriate for temporary Notes. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate Definitive Notes and deliver them in exchange for temporary Notes upon surrender of such temporary Notes at the office or agency of the Company, without charge to the Holder. SECTION 2.10. CANCELLATION. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment or cancellation and deliver canceled Notes to the Company pursuant to written direction by an officer. The Company may not issue new Notes to replace Notes it has redeemed, paid or delivered to the Trustee for cancellation. The Trustee shall not authenticate Notes in place of canceled Notes other than pursuant to the terms of this Indenture. SECTION 2.11. DEFAULTED INTEREST. If the Company defaults in a payment of interest or Special Interest, if any, on the Notes, the Company shall pay the defaulted interest (plus interest on such defaulted interest to the extent lawful) in any lawful manner. The Company may pay the defaulted interest to the Persons who are Holders on a subsequent special record date. The Company shall fix or cause to be fixed any such special record date and payment date to the reasonable satisfaction of the Trustee and shall promptly mail or cause to be mailed to each Holder a notice that states the special record date, the payment date and the amount of defaulted interest to be paid. SECTION 2.12. CUSIP NUMBERS. The Company in issuing the Notes may use Committee on Uniform Securities Identification Procedures numbers (the "CUSIP NUMBERS") (if then generally in use) and, if so, the Trustee shall use CUSIP numbers in notices of redemption as a convenience to Holders; PROVIDED, HOWEVER, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. ARTICLE 3. REDEMPTION SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem Notes pursuant to SECTION 4.09, SECTION 4.10 or paragraph 5 of the Notes, it shall notify the Trustee in Page 27 writing of the Redemption Date and the principal amount at maturity of Notes to be redeemed. The redemption provisions of paragraph 5 of the Notes are fully incorporated herein. The Company shall give each notice to the Trustee provided for in this SECTION 3.01 at least 30 days before the Redemption Date unless the Trustee consents to a shorter period. Such notice shall be accompanied by an Officers' Certificate and an Opinion of Counsel from the Company to the effect that such redemption will comply with the conditions herein. If fewer than all the Notes are to be redeemed, the record date relating to such redemption shall be selected by the Company and given to the Trustee, which record date shall be not fewer than 15 days after the date of notice to the Trustee. Any such notice may be canceled at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect. SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED. If fewer than all the Notes are to be redeemed, the Trustee shall select the Notes to be redeemed pro rata from all of the Holders. The Trustee shall make the selection from outstanding Notes not previously called for redemption. The Trustee may select for redemption portions of the principal amount at maturity of Notes that have denominations larger than $1,000. Notes and portions of them the Trustee selects shall be in principal amounts at maturity of $1,000 or a multiple thereof. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. The Trustee shall notify the Company promptly of the Notes or portions of Notes to be redeemed. SECTION 3.03. NOTICE OF REDEMPTION. (a) At least 10 days but not more than 60 days before a date for redemption of Notes, the Company shall mail a notice of redemption by first-class mail or by telefacsimile, with written confirmation of receipt, to each Holder of Notes to be redeemed at such Holder's registered address. The notice shall identify the Notes to be redeemed and shall state: (i) the Redemption Date; (ii) the Redemption Price and the amount of accrued interest to the Redemption Date; (iii) the name and address of the Paying Agent; (iv) that Notes called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (v) if fewer than all the outstanding Notes are to be redeemed, the certificate numbers and principal amount at maturity of the particular Notes to be redeemed; Page 28 (vi) that, unless the Company defaults in making such redemption payment or the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture, interest and any Special Interest on Notes (or portion thereof) called for redemption ceases to accrue on and after the Redemption Date; (vii) the CUSIP number, if any, printed on the Notes being redeemed; and (viii) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. (b) At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. In such event, the Company shall provide the Trustee with the information required by this SECTION 3.03. SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed, Notes called for redemption become due and payable on the Redemption Date and at the Redemption Price stated in the notice. Upon surrender to the Paying Agent, such Notes shall be paid at the Redemption Price stated in the notice, plus accrued interest and Special Interest, if any, to the Redemption Date; PROVIDED, HOWEVER, that if the Redemption Date is after a Regular Record Date and on or prior to the Interest Payment Date, the accrued interest and Special Interest, if any, shall be payable to the Holder of the redeemed Notes registered on the relevant Regular Record Date. Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. Prior to 10:00 a.m. (New York City time) on the Redemption Date, the Company shall deposit with the Paying Agent (or, if the Company or a Subsidiary is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the Redemption Price of, and accrued interest and Special Interest, if any, on all Notes to be redeemed on that date other than Notes or portions of Notes called for redemption that have been delivered by the Company to the Trustee for cancellation. On or after the Redemption Date, the interest shall cease to accrue on Notes or portions thereof called for redemption so long as the Company has deposited with the Paying Agent funds sufficient to pay the principal amount of, plus accrued and unpaid interest and Special Interest, if any, on, the Notes to be redeemed, unless the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture. SECTION 3.06. NOTES REDEEMED IN PART. Upon surrender of a Note that is redeemed in part, the Company shall execute and the Trustee shall authenticate for the Holder (at the Company's expense) a new Note equal in principal amount at maturity to the unredeemed portion of the Note surrendered. Page 29 ARTICLE 4. AFFIRMATIVE COVENANTS SECTION 4.01. PAYMENT OF NOTES. (a) The Company shall promptly pay the principal of and interest on the Notes on the dates and in the manner provided in the Notes and in this Indenture. Principal amount of and interest on the Notes shall be considered paid on the date due if on such date the Trustee or the Paying Agent holds in accordance with this Indenture money sufficient to pay all principal of and interest on the Notes then due and the Trustee or the Paying Agent, as the case may be, is not prohibited from paying such money to the Holders on that date pursuant to the terms of this Indenture. (b) The Company shall pay interest on overdue principal of the Notes at the rate specified therefor in the Notes and shall pay interest on overdue installments of interest at the same rate to the extent lawful. SECTION 4.02. COMMISSION REPORTS. Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall from and after a Note Registration, file with the Commission, and provide the Trustee, Holders and prospective Holders (upon request) within 15 days after it files them with the Commission, copies of its annual report and the information, documents and other reports that are specified in Section 13 and 15(d) of the Exchange Act. In the event that the rules and regulations promulgated under the Exchange Act or the interpretations of the Commission thereof would permit the Company, if it were subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, to cease to file separate reports pursuant thereto, Holdings may file with the Commission copies of its annual report and the information, documents and other reports that are specified in Section 13 and 15(d) of the Exchange Act (including such information as would be required to so permit the Company to cease to file separate reports) and provide them to the Trustee and Holders and prospective Holders (upon request) within 15 days after it files them with the Commission, in which case the Company shall be relieved of its obligations under the previous sentence. In addition, following an initial Equity Offering, the Company shall furnish to the Trustee and the Holders, promptly upon their becoming available, copies of the annual report to shareholders and any other information provided by Holdings to its public shareholders generally. The Company also shall comply with the other provisions of TIA section 314(a). SECTION 4.03. PRESERVATION OF CORPORATE EXISTENCE. The Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (a) its corporate existence, and the corporate, limited liability company, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary and (b) the rights (charter and statutory) and licenses of the Company and its Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to preserve any such right or license, or the corporate, limited Page 30 liability company, partnership or other existence of any of its Subsidiaries if the loss thereof does not and would not reasonably be expected to result in a Material Adverse Effect. SECTION 4.04. MAINTENANCE OF PROPERTIES. The Company will cause all properties used or useful in the conduct of its business or the business of any of its Subsidiaries to be maintained and kept in good condition, repair and working order and will cause to be made all necessary repairs, renewals and replacements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly conducted; PROVIDED, HOWEVER, that the foregoing shall not prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance does not and would not reasonably be expected to result in a Material Adverse Effect. SECTION 4.05. TAXES (a) PAYMENT OF TAXES AND OTHER CLAIMS. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all Taxes of the Company or any of its Subsidiaries and (ii) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon the property of the Company or any of its Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such Tax or claim (1) whose amount, applicability or validity is being contested in good faith by appropriate proceedings, PROVIDED that appropriate reserves therefor are established in the Company's consolidated financial statements in accordance with GAAP or (2) if the failure to pay such Tax or claim would not reasonably be expected to have a Material Adverse Effect. (b) TAX RETURNS. The Company and its Subsidiaries shall timely file or cause to be filed when due all material Tax Returns that are required to be filed by or with respect to the Company or any of its Subsidiaries for taxable years ending after the Closing Date and shall pay any Taxes due in respect of such Tax Returns except as permitted under SECTION 4.05(A). (c) CONTEST PROVISIONS. Prior to Note Registration, the Company shall promptly notify the Holders in writing upon receipt by the Company or any of its Subsidiaries of notice of any pending or threatened federal, state, local or foreign income or franchise Tax audits or assessments which may materially affect the Tax liabilities of the Company or any of its Subsidiaries. (d) TRANSFER TAXES. All transfer, transfer gains, documentary, sales, use, stamp, registration and other similar Taxes and fees (including costs and expenses relating to such Taxes) incurred in connection with the consummation of the transactions contemplated by this Indenture, shall be borne by the Company. The Holders shall reasonably cooperate with the Company in the preparation and filing of any such Tax Returns and other documentation. SECTION 4.06. COMPLIANCE CERTIFICATE. The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officers' Certificate made on behalf of the Company stating that in the course of the performance by the signers of their duties as officers of the Company they would normally have knowledge of any Default and whether or Page 31 not the signers know of any Default that occurred during such period. If they do, the certificate shall describe the Default, its status and what action the Company is taking or proposes to take with respect thereto. The Company also shall comply with Section 314(a)(4) of the TIA. SECTION 4.07. COMPLIANCE WITH LAW. The Company will, and will cause each of its Subsidiaries to, comply with all Applicable Laws and will obtain and maintain, and will cause each of its Subsidiaries to obtain and maintain, all Permits necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that any such non-compliance with Applicable Law or any failure to obtain or maintain such Permits, individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect. SECTION 4.08. INSURANCE. The Company shall cause its Subsidiaries to maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and business against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities engaged in a similar businesses. SECTION 4.09. OFFER TO REPURCHASE UPON CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control, the Company shall make an offer (a "CHANGE OF CONTROL OFFER") to each Holder to repurchase all or any part (equal to $1,000 or a multiple thereof) of each Holder's Notes at an offer price in cash equal to 101% of the outstanding principal amount thereof, plus accrued and unpaid interest thereon, if any, until the Change of Control Payment Date (the "CHANGE OF CONTROL PAYMENT") in accordance with the terms set forth below. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control, and the Company shall not be in violation of this Indenture by reason of any act required by such rule or other applicable law. (b) Within 30 days following any Change of Control, the Company shall mail a notice to each Holder stating: (i) that the Change of Control Offer is being made pursuant to this SECTION 4.09 and that all Notes tendered will be accepted for payment; (ii) the purchase price and the purchase date, which shall be at least 10 Business Days but no more than 60 days from the date on which the Company mails notice of the Change of Control (the "CHANGE OF CONTROL PAYMENT DATE"); (iii) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer shall be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Page 32 Paying Agent for such purpose, at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (iv) that Holders will be entitled to withdraw their election if the Company or its designated agent for such purpose, receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and (v) other information required to be included pursuant to SECTION 3.03. (c) On the Change of Control Payment Date, the Company shall, to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer and (ii) pay to the Holders of Notes or portions thereof so tendered an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered. The Company shall promptly mail or deliver by wire transfer to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Company shall promptly execute and mail (or cause to be transferred by book-entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; PROVIDED, HOWEVER, that each such new Note shall be in a principal amount of $1,000 or a multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (d) The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in a manner, at the times and otherwise in compliance with the requirements set forth in this SECTION 4.09 and such third party purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. SECTION 4.10. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS. (a) In the event that, pursuant to SECTION 5.05, the Company shall be required to commence an offer to all Holders to purchase Notes (an "ASSET SALE OFFER"), it shall follow the procedures specified in this SECTION 4.10. Each Asset Sale Offer shall remain open for not less than ten (10) Business Days nor more than sixty (60) days immediately following its commencement, except to the extent that a longer period is required by Applicable Law (the "OFFER PERIOD"). On the Business Day immediately after the termination of the Offer Period (the "PURCHASE DATE"), the Company shall purchase the principal amount of Notes required to be purchased pursuant to SECTION 5.05 plus accrued and unpaid interest, if any, thereon to the Purchase Date (the "OFFER AMOUNT") or, if less than the Offer Amount has been tendered, the Company shall purchase all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. (b) Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to each of the Holders which shall contain all instructions and Page 33 materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (i) that the Asset Sale Offer is being made pursuant to this SECTION 4.10 and SECTION 5.05 and the length of time the Asset Sale Offer shall remain open; (ii) the Offer Amount, the purchase price and the Purchase Date; (iii) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed to the Company at the address specified in the notice at least three Business Days before the Purchase Date; (iv) that Holders shall be entitled to withdraw their election if the Company receives, not later than the second Business Day prior to the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; and (v) other information required to be included pursuant to SECTION 3.03. (c) On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Holders and the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this SECTION 4.10. The Company shall promptly (but in any case not later than five (5) Business Days after the Purchase Date) mail or deliver by wire transfer to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note and deliver it to such Holder, in a principal amount at maturity equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. SECTION 4.11. POST-CLOSING GUARANTEES. The Company shall cause all of its future Domestic Subsidiaries (other than Permitted Partially Owned Subsidiaries) to become Guarantors and to execute simultaneously with and as a precondition to such Person becoming a Domestic Subsidiary, a Supplemental Guarantee, a Notation of Guarantee and to otherwise acknowledge its agreement to be bound by the Provisions of Article 12. SECTION 4.12 FURTHER ASSURANCES. The Company shall, upon the request of Holders, execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the provisions of this Indenture. Page 34 ARTICLE 5. NEGATIVE COVENANTS OF THE COMPANY SECTION 5.01. STAY, EXTENSION AND USURY LAWS. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of its obligations under the Notes or this Indenture, and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants (to the extent that it may lawfully do so) that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holders, but shall suffer and permit the execution of every such power as though no such law has been enacted. SECTION 5.02. RESTRICTED PAYMENTS. (a) The Company shall not, and shall not permit any of its Subsidiaries to, (i) declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of Capital Stock or other Equity Interests of, including any payment in connection with a merger or consolidation involving, the Company or any of its Subsidiaries, (ii) purchase, redeem or otherwise acquire for value any shares of Capital Stock or other Equity Interests of the Company or any of its Subsidiaries now or hereafter outstanding, (iii) make any payment or prepayment of principal of, premium, if any, interest, redemption, exchange, purchase, retirement, defeasance, sinking fund or other payment with respect to, any Subordinated Indebtedness or (iv) make any Restricted Investments (the items described in CLAUSES (I), (II) (III) and (IV) are referred to as "RESTRICTED PAYMENTS"); unless at the time of and after giving effect to such Restricted Payment; (A) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (B) the Company would, at the time such Restricted Payment was made and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-Fiscal Quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Coverage Ratio Test set forth in Section 5.04(a) hereof; and (C) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Subsidiaries after the date of this Indenture (excluding Restricted Payments permitted by the next succeeding paragraph), is less than the sum of (1) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first Fiscal Quarter commencing after the date of this Indenture to the end of the Company's most recently ended Fiscal Quarter for which internal financial statements Page 35 are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (2) 100% of the aggregate net cash proceeds received by the Company from contributions of capital from Holdings to the Company since the date of this Indenture or the issue or sale since the date of this Indenture of Equity Interests of the Company or of debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or convertible debt securities) sold to a Subsidiary of the Company and other than Disqualified Capital Stock or debt securities that have been converted into Disqualified Capital Stock), plus (3) to the extent that any Restricted Investment that was made after the date of this Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (x) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (y) the initial amount of such Restricted Investment. (b) The foregoing provisions shall not prohibit any of the following if no Default or Event of Default shall have occurred and be continuing immediately after any such transaction: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Indenture; (ii) the redemption, repurchase, retirement or other acquisitions of any Equity Interests of the Company in exchange for, or out of the proceeds of, the substantially concurrent sale of Capital Stock of the Company (other than any Disqualified Capital Stock); provided, however, that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (C)(2) of the preceding paragraph; (iii) the defeasance, redemption or repurchase of Subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness or the substantially concurrent sale (other than to a Subsidiary of the Company) of Capital Stock of the Company (other than Disqualified Capital Stock); provided, however, that the amount of any such net cash proceeds from the sale of Capital Stock of the Company that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (C)(2) of the preceding paragraph; (iv) the payment of any distribution or dividend or the making of any loan or advance to Holdings to enable Holdings to (A) pay its overhead expenses (including without limitation, all expenses under the Stockholders Agreement, the Holdings Exchange and Registration Rights Agreement and the Warrant Agreement pertaining to the registration under the Securities Act of the Holdings Notes and the Page 36 Capital Stock of Holdings), (B) pay all Taxes due and owing by Holdings, (C) (w) pay regularly scheduled installments of accrued and unpaid interest on the Holdings Notes that are required to be paid only in cash, (x) pay regularly scheduled installments of principal and interest on the Seller Notes that are required to be paid in cash, and all amounts as and when due with respect to Earn-Out Obligations that are required to be paid in cash, and (z) regularly scheduled installments of principal and interest and any other fees and expenses that are required under any Existing Indebtedness as to which Holdings is an obligor to be paid in cash, and (z) pay after the Closing Date obligations of Holdings prior to the Asset Dropdown (as defined in the Purchase Agreement) which remain obligations of Holdings as a matter of law and which are required to be paid in cash, (D) make any payments Holdings is required to make under the Management Services Agreement (or any agreement extending or replacing the Management Services Agreement which contains the same terms with respect to fees and other terms no less favorable to the Company and its Subsidiaries), (E) consummate the Merger (including making non-compete payments to senior officers of Holdings and the Company in connection therewith, making settlement or termination payments with respect to certain employment contracts, making retention or stay bonus payments and making deferred payments after the Closing with respect to restricted Capital Stock of Holdings held by certain employees of Holdings and its Subsidiaries, to the extent the same have been disclosed to the Purchasers pursuant to the Purchase Agreement), repay any Indebtedness of Holdings outstanding immediately prior to the Merger, specified in the Purchase Agreement, to be paid in connection with the Merger, and pay all fees and expenses incurred by Holdings in connection with the Merger and the financing thereof, (F) pay Holdings' auditors' fees and expenses, (G) repurchase, redeem or otherwise acquire or retire for value of any Equity Interests of Holdings, held by any member of Holdings', the Company's (or any of its Subsidiaries') management pursuant to the Stockholders Agreement, any management equity subscription agreement or stock option agreement; provided, however, that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $1,500,000 in any Fiscal Year plus the unused portion of said $1,500,000 from the immediately preceding Fiscal Year plus the aggregate cash proceeds received by the Company or any Subsidiary during such Fiscal Year from any reissuance of Equity Interests by the Company or any Subsidiary to members of management of the Company and its Subsidiaries plus any proceeds received during such Fiscal Year under key man insurance policies with respect to such members of management; and PROVIDED, FURTHER, that any such aggregate cash proceeds from any such reissuance of Equity Interests shall be excluded from clause (C)(2) of the preceding paragraph; and (H) to make any other Restricted Payment or Permitted Investment, or to consummate any Affiliate Transaction, but in each case only to the extent permitted under the Holdings Indenture as in effect as of the date of this Indenture; (v) the making by the Company and its Subsidiaries of loans or advances to veterinarians (or professional corporations owned by such veterinarians) substantially involved in the business of a Subsidiary of the Company to allow such veterinarians (or such professional corporations) to acquire Capital Stock of such Subsidiary, so long as such Subsidiary remains a Permitted Partially Owned Subsidiary Page 37 after such acquisition of its Capital Stock and the making by the Company of Restricted Payments to Holdings to enable Holdings to make the loans or advances permitted by this clause (v); (vi) the redemption or repurchase of any Capital Stock of a Permitted Partially Owned Subsidiary owned by a licensed veterinarian (or professional corporation owned by a licensed veterinarian) whose employment by the Company or any Subsidiary of the Company has terminated, provided the consideration paid does not exceed the fair market value of such Capital Stock as determined by the Board of Directors in good faith and all Indebtedness owed by such veterinarian (or professional corporation) to Holdings and its Subsidiaries is repaid in full concurrently with such redemption or repurchase; (vii) the payment by any Subsidiary of any dividend or distribution on its Capital Stock or the redemption or repurchase by any Subsidiary of its Capital Stock to the extent the proceeds thereof or any property transferred pursuant thereto are paid pro rata to the holders of such Capital Stock; (viii) the making of Restricted Payments by the Company to allow Holdings to make Restricted Payments necessary to consummate the Merger or prepay Existing Indebtedness; (ix) the making of Restricted Payments by the Company to Holdings to the extent that Holdings is obligated under Section 4.10 and 5.05 of the Holdings Indenture by reason of one or more Asset Sales by the Company and its Subsidiaries to make an Asset Sale Offer to holders of the Holdings Notes; and (x) the making of other Restricted Payments not to exceed $5.0 million in the aggregate since the date of this Indenture. (c) The Company and its Subsidiaries may make regularly scheduled payments in respect of any Subordinated Indebtedness permitted hereby in accordance with the terms of, and only to the extent required by, and subject to the subordination provisions contained in, any agreement pursuant to which such Subordinated Indebtedness was issued, so long as no Event of Default described in SECTION 7.01 has occurred or is continuing or will result therefrom, provided that in the event that any regularly scheduled payments in respect of any Subordinated Indebtedness are not permitted to be made because of such Events of Default, such regularly scheduled payments in respect of any Subordinated Indebtedness shall accrue and may be paid upon the waiver, cure or rescission of the applicable Event of Default so long as no other Event of Default described in SECTION 7.01 has occurred and is continuing or will result therefrom. (d) The amount of all Restricted Payments (other than cash) shall be the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) on the date of the Restricted Payment of the asset(s) proposed to be transferred by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. Page 38 SECTION 5.03. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary of the Company to (a)(i) pay dividends pro rata or make any other distributions pro rata with respect to any Capital Stock of such Subsidiary or any other interest or participation in, or measured by, such Subsidiary's profits, or (ii) pay any indebtedness owed by such Subsidiary to the Company or any of the Company's other Subsidiaries, (b) make loans or advances to the Company or any of the Company's Subsidiaries or (c) transfer any of its properties or assets pro rata to the Company or any of the Company's Subsidiaries, except for such encumbrances or restrictions existing under or by reason of: (i) Existing Indebtedness as in effect on the date of this Indenture; (ii) the Credit Documents as in effect as of the date of this Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or Refinancings thereof permitted hereunder, PROVIDED, HOWEVER, that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or Refinancings are not materially more restrictive with respect to such provisions than those contained in the Credit Documents on the date hereof; (iii) this Indenture and the Notes as in effect on the date of this Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or Refinancings thereof; (iv) the Holdings Indenture and the Holdings Notes; (v) applicable law; (vi) by reason of customary non-assignment provisions in leases, licenses and other agreements entered into in the Ordinary Course of Business and consistent with past practices; (vii) capital leases or purchase money obligations for property acquired in the Ordinary Course of Business that impose restrictions of the nature described in clause (vi) above on the property so acquired; (viii) Permitted Refinancing Indebtedness; PROVIDED, HOWEVER, that such restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive than those contained in the agreements governing the Indebtedness being Refinanced; (ix) any instrument governing Indebtedness, Capital Stock or assets of a Person acquired by the Company or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such instrument was created or such Indebtedness was Incurred in connection with or in contemplation of such acquisition), which Page 39 encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, PROVIDED that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be Incurred; (x) secured Indebtedness otherwise permitted to be Incurred pursuant to this Indenture that limits the right of the debtor thereunder to dispose of the assets securing such Indebtedness; (xi) contracts for the sale of assets, including without limitation customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary; (xii) restrictions on deposits or minimum net worth requirements imposed by customers under contracts entered into in the Ordinary Course of Business; (xiii) customary provisions in joint venture agreements, licenses and leases and other similar agreements entered into in the Ordinary Course of Business; and (xiv) statutory or contractual provisions requiring pro rata treatment of holders of Capital Stock of Subsidiaries constituting Permitted Partially Owned Subsidiaries. SECTION 5.04. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED CAPITAL STOCK OR PREFERRED STOCK. (a) The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, Guarantee or otherwise become directly or indirectly liable, contingently or otherwise (including any operation of law), with respect to (collectively, "INCUR") any Indebtedness (including Acquired Indebtedness), and the Company shall not issue any Disqualified Capital Stock and shall not permit any of its Subsidiaries to issue any Preferred Stock; provided, however, that the Company and its Subsidiaries may Incur Indebtedness (including Acquired Indebtedness), and the Company and the Guarantors may guarantee such Indebtedness, if immediately after the Incurrence of such Indebtedness, the Consolidated Interest Coverage Ratio for the most recent four full fiscal quarter period exceeds 2.50 to 1.00 if such Incurrence is prior to September 30, 2002 and exceeds 2.75 to 1.00 if such Incurrence occurs thereafter (the test set forth in the foregoing clause is referred to herein as "COVERAGE RATIO TEST"). For the purpose of the Coverage Ratio Test, with respect to any period during which a Permitted Acquisition or an Asset Disposition has occurred (each a "SUBJECT TRANSACTION"), Consolidated EBITDA and the components of Consolidated Interest Expense shall be calculated with respect to such period on a pro forma basis (including pro forma adjustments arising out of events which are directly attributable to a specific transaction, are factually supportable and are expected to have a continuing impact, in each case determined on a basis which is consistent with Article 11 of Regulation S-X promulgated under the Securities Act and as interpreted by the staff of the Commission, which would include cost savings resulting Page 40 from head count reduction, closure of facilities and similar restructuring charges which pro forma adjustments shall be certified on behalf of the Company by the chief financial officer of the Company) using the historical financial statements of any business so acquired or to be acquired or sold or to be sold and the consolidated financial statements of the Company and its Subsidiaries which shall be reformulated as if such Subject Transaction, and any Indebtedness incurred or repaid in connection therewith, had been consummated or incurred or repaid at the beginning of such period (and assuming that such Indebtedness bears interest during any portion of the applicable measurement period prior to the relevant acquisition at the weighted average of the interest rates applicable to outstanding revolving loans under the Credit Agreement Incurred during such period); provided, however, such calculations of Consolidated Adjusted EBITDA with respect to Permitted Acquisitions, the consideration for which constitutes $3,000,000 or less, shall be based on reasonable estimations of such pre-acquisition EBITDA based on actual pre-acquisition revenues. (b) The foregoing provisions shall not apply to: (i) the Incurrence by the Company and its Subsidiaries of the Existing Indebtedness; (ii) the Incurrence by the Company and its Subsidiaries of the Indebtedness represented by the Notes and the Guarantees thereof or the Exchange Notes and the Exchange Guarantees thereof, as the case may be; (iii) the Incurrence by the Company or any of its Subsidiaries of (x) Indebtedness represented by Capitalized Lease Obligations, mortgage financings or purchase money Indebtedness, in each case, Incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Subsidiary, or (y) Acquired Indebtedness Incurred in connection with a Permitted Acquisition provided such Indebtedness was not Incurred in connection with or in contemplation of such Permitted Acquisition, in an aggregate principal amount not to exceed (without duplication) $15,000,000 at any one time outstanding; provided that all or a portion of the Indebtedness permitted to be incurred under this clause (iii) may, at the option of the Company, without limitation as to purpose, be incurred under the Credit Agreement instead of pursuant to Capitalized Lease Obligations, mortgage financing or purchase money Indebtedness; (iv) the Incurrence by the Company or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to extend, Refinance, renew, replace, defease or refund, Indebtedness that was permitted by this Indenture to be Incurred; (v) the Incurrence by the Company or any of its Subsidiaries of intercompany Indebtedness between or among the Company and any Restricted Subsidiaries of the Company that (except for Permitted Partially Owned Subsidiaries) are Guarantors; PROVIDED, HOWEVER, that (A) if the Company is the obligor on such Page 41 Indebtedness, such Indebtedness is expressly subordinate to the payment in full of all Obligations with respect to the Notes to the same extent that the Notes are subordinated to Senior Indebtedness and (B)(1) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company, a Restricted Subsidiary of the Company that (except for Permitted Partially Owned Subsidiaries) is a Guarantor or a lender or agent under the Credit Documents, and (2) any sale or other transfer of any such Indebtedness to a Person other than the Company, a Restricted Subsidiary of the Company that (except for Permitted Partially Owned Subsidiaries) is a Guarantor, or a lender or agent upon exercise of remedies under a pledge of such Indebtedness under the Credit Documents, shall be deemed, in each case, to constitute an Incurrence of such Indebtedness by the Company or such Subsidiary, as the case may be; (vi) the Incurrence by the Company or any of its Subsidiaries of Interest Swap Obligations that are Incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding; (vii) the Incurrence by the Company and its Subsidiaries of the Senior Indebtedness evidenced by the Credit Documents (and the Guarantees thereof by the Company's Subsidiaries) less the amount of all term loan repayments and permanent reductions actually made under the Credit Agreement with the Net Proceeds of an Asset Disposition applied thereto to the extent required by SECTION 5.05; provided that the amount of Indebtedness permitted to be Incurred pursuant to the Credit Agreement in accordance with this clause (vii) shall be in addition to any Indebtedness permitted to be incurred pursuant to the Credit Agreement in reliance on and in accordance with SECTION 5.04(A) above, with clause (iii) above and clause (xiii) below and with clause (z) in the definition of Credit Agreement; (viii) the Incurrence by the Company or any of its Subsidiaries of Indebtedness under Currency Agreements; (ix) the Incurrence by the Company or any of its Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the Ordinary Course of Business; (x) the Incurrence by the Company or any of its Subsidiaries of Indebtedness of the Company or any of its Subsidiaries represented by letters of credit for the account of the Company or such Subsidiary, as the case may be, in order to provide security for workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in the Ordinary Course of Business; (xi) the Incurrence by the Company or any of its Subsidiaries of Indebtedness in respect of performance bonds, bankers' acceptances, workers' Page 42 compensation claims, surety or appeal bonds, payment obligations in connection with self-insurance or similar obligations Incurred in the Ordinary Course of Business; (xii) the Guarantee by the Company or any of its Subsidiaries of Indebtedness of the Company or a Subsidiary of the Company that was permitted to be Incurred by another provision of this SECTION 5.04; (xiii) the Incurrence by the Company or any of its Subsidiaries of Indebtedness (in addition to Indebtedness permitted by any other clause of this paragraph) in an aggregate principal amount at any time outstanding not to exceed $15,000,000; provided that all or a portion of the Indebtedness permitted to be incurred under this clause (xiii) may, at the option of the Company be incurred under the Credit Agreement; (xiv) Indebtedness arising from agreements of the Company or a Subsidiary of the Company providing for indemnification, adjustment of purchase price or similar obligations, in each case, Incurred in connection with an Asset Disposition or a Permitted Acquisition; (xv) Indebtedness arising from agreements of the Company or a Subsidiary of the Company (including the Exchange and Registration Rights Agreement and similar contractual undertakings) providing for indemnification and payment of expenses relating to the registration under the Securities Act of the sale of the Notes; (xvi) the Incurrence by the Company or any Subsidiary of the Company of Indebtedness constituting Restricted Payments to or Permitted Investments in such Person permitted to be made hereunder by the Company and its Subsidiaries; (xvii) the Incurrence of Indebtedness by the Company or any Subsidiary of the Company as a result of its indemnification permitted pursuant to SECTION 5.06(C) and SECTION 5.06(D); and (xviii) the Incurrence of Indebtedness by the Company or any Subsidiary of the Company in connection with repurchases or redemption of minority interests in Permitted Partially Owned Subsidiaries permitted by SECTION 5.02(B)(VI), in an aggregate principal amount at any time outstanding not to exceed $5,000,000. (c) For purposes of determining compliance with this SECTION 5.04, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Indebtedness described in clauses (i) through (xviii) of the immediately preceding paragraph or is entitled to be Incurred pursuant to the Coverage Ratio Test set forth above, the Company shall, in its sole discretion, classify (or later reclassify) such item of Indebtedness in any manner that complies with this SECTION 5.04 and will only be required to include the amount and type of such Indebtedness in one of such clauses of SECTION 5.04(B) or pursuant to SECTION 5.04(A). Accrual of interest, accretion of accreted value, amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms as the Indebtedness on which such interest is being paid and any other issuance of securities Page 43 paid-in-kind shall not be deemed to be an Incurrence of Indebtedness for purposes of this SECTION 5.04. In addition, the Company may, at any time, change the classification of an item of Indebtedness (or any portion thereof) to any other clause of SECTION 5.04(B) or to Indebtedness properly incurred under SECTION 5.04(A) PROVIDED that the Company would be permitted to Incur such item of Indebtedness (or portion thereof) pursuant to such other clause of this SECTION 5.04(B) or SECTION 5.04(A), as the case may be, at such time of reclassification. SECTION 5.05. ASSET DISPOSITIONS. (a) The Company shall not, and shall not permit any of its Subsidiaries to, consummate any Asset Disposition (PROVIDED that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole shall be governed by the provisions of SECTION 4.03 and/or ARTICLE 6 and not by the provisions of this SECTION 5.05) unless all of the following conditions are met: (i) at any time prior to a Note Registration, the aggregate fair market value of assets (exclusive of (x) the Specified Assets, (y) any assets subject to a Sale and Leaseback Transaction permitted hereunder and (z) assets involuntarily disposed of in an insured loss or as a result of a condemnation proceeding) sold or otherwise disposed of in any fiscal year of the Company does not exceed 20% of the Consolidated Tangible Assets at the beginning of the fiscal year; (ii) the consideration received is at least equal to the fair market value of such assets (except as the result of any foreclosure or sale by the lenders under the Credit Documents); (iii) at least 80% of the consideration received is cash; and (iv) no Default or Event of Default then exists or shall result from such Asset Disposition; PROVIDED, HOWEVER, that the amount of (x) any liabilities (as shown on the Company's or such Subsidiary's most recent balance sheet) of the Company or any Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes) that are assumed by the transferee of any such assets pursuant to any arrangement releasing the Company or such Subsidiary from further liability and (y) any securities, notes or other obligations received by the Company or any such Subsidiary from such transferee that are converted by the Company or such Subsidiary into cash or Cash Equivalents within 90 days after the Asset Sale (to the extent of the cash received), shall be deemed to be cash for purposes of this provision. (b) Within 365 days after the receipt of any Net Proceeds from an Asset Disposition, the Company or the Subsidiary making such Asset Disposition, as the case may be, may apply such Net Proceeds (i) to permanently reduce Senior Indebtedness or Guarantor Senior Indebtedness or to purchase Notes (with the consent of the Holders thereof to the extent required) or Indebtedness ranking PARI PASSU with the Notes (and to correspondingly reduce commitments with respect thereto) or (ii) to the acquisition of a controlling interest in another business, the making of Capital Expenditures or the investment in or acquisition of other long-term assets, in each case, in the same or a similar line of business as the Company and its Subsidiaries engaged in at the time such assets were sold or in a business reasonably related, complementing or ancillary thereto or a reasonable expansion thereof. Pending the final application of any such Net Proceeds, the Company may temporarily reduce revolving credit Indebtedness under the Credit Agreement or otherwise invest such Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the Page 44 first sentence of this paragraph shall be deemed to constitute "EXCESS PROCEEDS." When the aggregate amount of Excess Proceeds exceeds in any fiscal year $5,000,000, the Company shall make an Asset Sale Offer pursuant to SECTION 4.10 to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the outstanding principal amount thereof, plus accrued and unpaid interest, thereon to the date of purchase, in accordance with the procedures set forth in SECTION 4.10. To the extent that the aggregate principal amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Company shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. To the extent that the provisions of any securities laws or regulations conflict with the provision so of this Indenture relating to such Asset Sale Offer, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in this Indenture by virtue thereof. SECTION 5.06. TRANSACTIONS WITH AFFILIATES. The Company will not and will not permit any of its Subsidiaries directly or indirectly to enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any management, consulting, investment banking, advisory or other similar services) with any Affiliate or with any director, officer or employee of the Company or any Guarantor (each of the foregoing, an "AFFILIATE TRANSACTION"), except: (a) the performance of any of the Transaction Documents as in effect as of the date of this Indenture and the consummation of the transactions contemplated thereby (including pursuant to any amendment thereto so long as any such amendment is not disadvantageous to the Holders of the Notes in any material respect); (b) transactions (i) in the ordinary course of and pursuant to the reasonable requirements of the business of the Company or any of its Subsidiaries and upon fair and reasonable terms which are not materially less favorable to the Company or such Subsidiary than would be obtained in a comparable arm's length transaction with a Person that is not an Affiliate and (ii) the Company delivers to the Trustee (A) with respect to any Affiliate Transaction involving aggregate consideration in excess of $1,000,000, a resolution of the Board of Directors of the Company set forth in an Officers' Certificate certifying that such Affiliate transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors of the Company, and (B) with respect to any Affiliate Transaction or series of Affiliate Transactions involving in excess of $5,000,000, an opinion as to the fairness of such Affiliate Transaction to the Company from a financial point of view issued by an investment banking firm of national standing; (c) payment of customary compensation to officers, employees, consultants and investment bankers for services actually rendered to the Company, including indemnity; Page 45 (d) payment of director's fees plus expenses and customary indemnification of directors; (e) payment of (i) fees and other expenses to Leonard Green & Partners, L.P. and other Affiliates of GEI pursuant to the Management Services Agreement (or any agreement extending or replacing the Management Services Agreement that contains the same terms with respect to fees and other terms no less favorable to Holdings and its Subsidiaries), not to exceed, in any Fiscal Year the sum of (x) 1.6% of capital invested in Holdings by Principals, (y) normal and customary fees for financial advice and investment banking services that may be undertaken on behalf of the Company and its Subsidiaries that may be undertaken from time to time, and (z) reimbursement of out-of-pocket costs and expenses; and (ii) a one-time general services and structuring fee in connection with the closing of the transactions contemplated in the Merger Agreement; (f) the payment of the fees, expenses and other amounts payable by the Company and its Subsidiaries in connection with the transactions contemplated by the Transaction Documents (including non-competition payments to be made to certain senior officers of Holdings or the Company disclosed to the Purchasers pursuant to the Purchase Agreement) that were disclosed to the Purchasers on or prior to the Closing Date; (g) transactions undertaken pursuant to the agreements set forth on SCHEDULE 5.06, copies of which shall have been provided to the Purchasers prior to the Closing Date; (h) Restricted Payments permitted by SECTION 5.03 and Permitted Investments; (i) transactions between or among the Company and/or its Subsidiaries; (j) the sale of Capital Stock of Subsidiaries of the Company to Affiliates of such Subsidiaries to the extent that a Permitted Partially Owned Subsidiary results therefrom, and the redemption or repurchase from Affiliates of such Subsidiaries of minority interests in Permitted Partially Owned Subsidiaries; and (k) the issuance of payments, awards or grants, in cash or otherwise, pursuant to, or the funding of, employment arrangements approved by the Board of Directors of the Company in good faith and customary loans and advances to employees of the Company or any Subsidiary of the Company to the extent otherwise permitted in this Indenture. Notwithstanding the foregoing, unless otherwise approved by the Required Holders, no payments may be made with respect to the management fees and expenses described in SECTION 5.06(E)(I)(X) after the Required Holders have provided written notice to GEI of the occurrence and continuance of an Event of Default under SECTION 7.01(A), SECTION 7.01(B) or SECTION 7.01(G) or, prior to a Note Registration, an Event of Default caused by the failure of the Company to comply with the covenants and agreements set forth in SECTION 9 of the Purchase Agreement; PROVIDED such management fees may continue to accrue following such notice and be payable (notwithstanding any maximum amount of payments otherwise applicable to the Fiscal year in Page 46 which such deferred payment is actually made) once such Event of Default is cured, waived or rescinded. SECTION 5.07. LIMITATION ON LIENS. The Company may not, and may not permit any Subsidiary of the Company to, incur or suffer to exist any Lien on or with respect to any property or assets now owned or hereafter acquired to secure any Indebtedness of the Company or any Subsidiary of the Company that is expressly by its terms pari passu with or subordinate or junior in right of payment to the Notes or the Guarantees of the Notes made by the applicable Guarantor, (a) without making, or causing such Subsidiary to make, effective provision for securing the Notes (i) equally and ratably with such pari passu Indebtedness as to such property or assets for so long as such Indebtedness will be so secured or (ii) in the event such Indebtedness is subordinate in right of payment to the Notes, prior to such Indebtedness as to such property or assets for so long as such Indebtedness will be so secured, and (b) unless the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that the incurrence of such Lien complies with this Indenture. SECTION 5.08. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF SUBSIDIARIES. The Company shall not, and shall not permit any Subsidiary of the Company to, transfer, convey, sell, issue, lease or otherwise dispose of any Capital Stock of any Subsidiary of the Company to any Person (other than to the Company or a Restricted Subsidiary of the Company), unless (a) (i) such transfer, conveyance, sale, lease or other disposition is of all the Capital Stock of such Subsidiary and its Subsidiaries, and (ii) the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with the provisions of SECTION 5.05, or (b) such transfer, conveyance, sale, issuance, lease or other disposition is to a licensed veterinarian (or professional corporation owned by a licensed veterinarian) in a transaction resulting in a Permitted Partially Owned Subsidiary; PROVIDED, HOWEVER, that this SECTION 5.08 shall not restrict any pledge of Capital Stock of the Company and its Subsidiaries securing Indebtedness under the Credit Documents. SECTION 5.09. SALES AND LEASEBACK TRANSACTIONS. The Company shall not, and shall not permit any of its Subsidiaries to, enter into any Sale and Leaseback Transaction; PROVIDED, HOWEVER, that the Company and its Subsidiaries may (a) enter into a Sale and Leaseback Transaction if (i) the Company or such Subsidiary could have Incurred Indebtedness in an amount equal to the Attributable Debt relating to such Sale and Leaseback Transaction pursuant to SECTION 5.04, (ii) the gross cash proceeds of such Sale and Leaseback Transaction are at least equal to the fair market value (as determined in good faith by the Board of Directors) of the property that is the subject of such Sale and Leaseback Transaction and (iii) the Company or such Subsidiary applies the proceeds of such transaction in compliance with, the provisions of SECTION 5.05 (unless the Sale and Leaseback in question is excluded from the definition of Asset Disposition by clauses (xi) or (xii) thereof), (b) enter into Sale and Leaseback Transactions which are in the ordinary course of the Company's or such Subsidiary's business consistent with past practice and at market rates with respect to equipment acquired by the Company and its Subsidiaries after the Closing Date if the proceeds of any such Sale Leaseback shall be entirely in cash and shall not be less than 100% of the fair market value of the equipment being sold (determined in good faith by the Company, provided that at the time of and immediately after Page 47 giving effect to any such Sale and Leaseback Transaction, the aggregate fair market value of all equipment so sold or disposed of in connection with such Sale and Leaseback Transactions covered by this clause (b) shall not exceed an amount equal to $7,500,000. SECTION 5.10. PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED Debt. The Company shall not, and shall not permit any Subsidiary that is a Guarantor to, Incur or suffer to exist Indebtedness that is senior in right of payment to the Notes or said Guarantor's Guarantee, as the case may be, and subordinate in right of payment to any other Indebtedness of the Company or such Guarantor, as the case may be. SECTION 5.11. CONDUCT OF BUSINESS. The Company shall not and shall not permit any of its Subsidiaries directly or indirectly to engage in any business other than business of the type in which the Company and its Subsidiaries were engaged on the date of this Indenture or any business reasonably related, complementing or ancillary thereto or a reasonable expansion thereof. ARTICLE 6. MERGER, CONSOLIDATION, SALE OF ASSETS, ETC. SECTION 6.01. WHEN COMPANY CAN MERGE, CONSOLIDATE, SELL ASSETS, Etc. The Company shall not consolidate or merge with or into (whether or not the Company is the surviving corporation), or directly and/or indirectly through its Subsidiaries sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the properties and assets of the Company and its Subsidiaries taken as a whole in one or more related transactions, to any other Person, unless: (a) the resulting, surviving or transferee Person (the "SUCCESSOR COMPANY") shall be a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not the Company) shall expressly assume, by a supplemental indenture hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Notes and this Indenture; (b) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Subsidiary as a result of such transaction as having been Incurred by the Successor Company or such Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (c) immediately after giving effect to such transaction, the Successor Company would be able to Incur an additional $1.00 of Indebtedness pursuant to the Coverage Ratio Test set forth in SECTION 5.04(A); (d) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) are permitted by and comply with this Indenture; and Page 48 (e) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders will not recognize income, gain or loss for Federal income tax purposes as a result of such transaction and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such transaction had not occurred. The Successor Company shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture, but the Company in the case of a conveyance, transfer or lease of all or substantially all its assets shall not be released from the obligation to pay the principal of and interest on the Notes. ARTICLE 7. EVENTS OF DEFAULT; REMEDIES SECTION 7.01. EVENTS OF DEFAULT. An Event of Default shall exist upon the occurrence of any of the following specified events (each an "EVENT OF DEFAULT"): (a) the Company defaults in the payment when due of interest, if any, on the Notes and such default continues for either (i) a period of ten (10) days prior to a Note Registration or (ii) thirty (30) days thereafter; (b) the Company defaults in the payment when due of the principal amount of or premium, if any, on the Notes when the same becomes due and payable at its Maturity, upon redemption or otherwise (whether or not such payment is prohibited under Article 11); (c) the Company fails to observe or perform any other covenant or other agreement in this Indenture, the Purchase Agreement or the Notes and such failure continues for a period of thirty (30) days after any senior officer of the Company has obtained actual knowledge of the same; (d) any representation, warranty, certification or statement made by the Company or any Subsidiary of the Company in respect of the Purchase Agreement and the related documents or in any statement or certificate at any time given by or on behalf of the Company or any of its Subsidiaries in writing pursuant to the Purchase Agreement or any other related documents shall be false in any material respect on the date as of which made; (e) a default occurs under any mortgage, indenture or agreement or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries (or payment of which is Guaranteed by the Company or any of its Subsidiaries), whether such Indebtedness or Guarantee now exists, or is created after the date of this Indenture (which default in the case (but only in the case) of Senior Indebtedness or Guarantor Senior Indebtedness (i) constitutes a failure to pay at final maturity (after giving effect to any applicable grace periods and any extensions thereof) the principal amount of such Indebtedness or (ii) shall have resulted in such Page 49 Indebtedness being accelerated or otherwise become or being declared due and payable prior to its stated maturity), and the principal amount of all such Indebtedness as to which a default described in this paragraph (e) has occurred aggregates $7,500,000 or more; (f) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any of its Subsidiaries and such judgment or judgments remain unpaid and undischarged for a period (during which execution shall not be effectively stayed) of 60 days, and is not adequately covered by insurance or indemnities which have been cash collateralized, provided that the aggregate of all such undischarged or uninsured judgments exceeds $7,500,000; (g) Holdings, the Company or any of its Material Subsidiaries: (i) commences a voluntary case or proceeding, (ii) consents to the entry of a decree or order for relief against it in an involuntary case or proceeding or to the commencement of any case or proceeding against it, (iii) consents to the filing of a petition or to the appointment of or taking possession by a Custodian (as defined below) of it or for all or any substantial part of its property, (iv) makes or consents to the making of a general assignment for the benefit of its creditors, (v) generally is not paying, or admits in writing that it is not able to pay its debts as they become due, or (vi) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any of its Material Subsidiaries in an involuntary case or proceeding; (B) appoints a Custodian of the Company or any of its Material Subsidiaries or for all or any substantial part of the property of the Company or any of its Material Subsidiaries or approves as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of any of the foregoing; or (C) orders the winding up or liquidation of the Company or any of its Material Subsidiaries or adjudges any of them as bankrupt or insolvent; and any such order or decree remains unstayed and in effect for sixty (60) consecutive days; or Page 50 (h) any Guarantee of any Guarantor which is a Material Subsidiary ceases to be in full force and effect (other than in accordance with its terms) or any Guarantee of any Guarantor which is a Material Subsidiary is declared to be null and void and unenforceable (other than in accordance with its terms or as a result of payment in full of the Obligations secured thereby) or any Guarantee of any Guarantor which is a Material Subsidiary is found to be invalid or any Guarantor which is a Material Subsidiary denies its liability under its Guarantee (other than by reason of release of a Guarantor in accordance with the terms of this Indenture or as a result of payment in full of the Obligations secured thereby). The term "CUSTODIAN" means any custodian, receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. SECTION 7.02. ACCELERATION. If an Event of Default (other than an Event of Default specified in SECTION 7.01(G) with respect to the Company) occurs and is continuing, the Trustee by notice to the Company or the Holders of (i) until a Note Registration, more than 50% in principal amount of the Notes at the time outstanding, and (ii) thereafter, 25% or more in principal amount of the then outstanding Notes may declare the principal of and accrued but unpaid interest and any Special Interest on all the Notes to be due and payable; provided that so long as the Credit Agreement shall be in force and effect, if an Event of Default (other than an Event of Default specified in SECTION 7.01(G)) occurs and is continuing, any such acceleration shall not be effective until the earlier to occur of (x) five (5) Business Days following the delivery of a notice of such acceleration to the Representative under the Credit Agreement and, if such acceleration is declared by the Holders, to the Trustee and (y) the acceleration of any Indebtedness under the Credit Agreement. The Company shall give notice of any acceleration under clause (y) of the preceding sentence to the Holders and the Trustee promptly upon its becoming aware thereof. Upon such a declaration, such principal and interest will be due and payable immediately. If an Event of Default specified in SECTION 7.01(G) with respect to Holdings or the Company occurs, the principal of and interest on all the Notes shall IPSO FACTO become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. The Holders of a majority in principal amount at maturity of the outstanding Notes by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal of or interest on Notes that has become due solely because of acceleration. No such rescission shall affect any subsequent Default or impair any right consequent thereto. In the interest of clarity and for the avoidance of doubt, if an Event of Default under SECTION 7.01(E) shall have occurred, but the default thereunder shall have been cured or waived, or any acceleration thereunder shall have been rescinded, then such cure, waiver or rescission shall similarly and automatically apply to the Event of Default under SECTION 7.01(E) hereof. If an Event of Default has occurred and is continuing, the Notes will accrue interest at 2% per annum plus the stated interest rate on the Notes, until such time as no Event of Page 51 Default shall be continuing (to the extent that the payment of such interest shall be legally enforceable). The Company shall give prompt notice to the Trustee and the Holders of the occurrence of any Event of Default and the rescission, cure or waiver of any Event of Default. SECTION 7.03. OTHER REMEDIES. Notwithstanding any other provision of this Indenture, if an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of or interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding in its own name and as trustee of an express trust even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. SECTION 7.04. WAIVER OF PAST DEFAULTS. The Holders of a majority in principal amount at maturity of the Notes by notice to the Trustee may waive an existing Default and its consequences except (a) a Default in the payment of principal of or interest on a Note, (b) a Default arising from the failure to redeem or purchase any Note when required pursuant to the terms of this Indenture or (c) a Default in respect of a provision that under SECTION 10.02 cannot be amended without the consent of each Holder affected. When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right. SECTION 7.05. CONTROL BY MAJORITY. The Holders of a majority in principal amount of the outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or, subject to SECTION 8.01, that the Trustee determines is unduly prejudicial to the rights of other Holders or would involve the Trustee in personal liability; PROVIDED, HOWEVER, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. SECTION 7.06. LIMITATION ON SUITS. (a) Except to enforce the right to receive payment of principal of or interest on the Notes when due, no Holder may pursue any remedy with respect to this Indenture or the Notes unless: (i) the Holder has previously given to the Trustee written notice stating that an Event of Default has occurred and is continuing; Page 52 (ii) the Holders of at least 25% in principal amount at maturity of the outstanding Notes make a written request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer to the Trustee reasonable security or indemnity against any loss, liability or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and (v) the Holders of a majority in principal amount at maturity of the outstanding Notes do not give the Trustee a direction inconsistent with the request during such 60-day period. (b) A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. SECTION 7.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and any Special Interest and interest on the Notes held by such Holder, on or after the respective due dates expressed or provided for in the Notes, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 7.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in SECTION 7.01(A) or (B) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Notes for the whole amount then due and owing (together with interest on overdue portion of the principal amount and (to the extent lawful) on any unpaid interest at the rate provided for in the Notes) and the amounts provided for in SECTION 8.07. SECTION 7.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Holders allowed in any judicial proceedings relative to the Company or any Subsidiary or Guarantor, their creditors or their property and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under SECTION 8.07. SECTION 7.10. PRIORITIES. If the Trustee collects any money or property pursuant to this ARTICLE 7, it shall pay out the money or property in the following order: Page 53 FIRST: to the Trustee for amounts due under SECTION 8.07; SECOND: to Holders of Senior Indebtedness of the Company to the extent required by Article 11; THIRD: to Holders for amounts due and unpaid on the Notes for principal and interest, ratably, and any Special Interest without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, any Special Interest and interest, respectively; and FOURTH: to the Company. The Trustee may fix a record date and payment date for any payment to Holders pursuant to this SECTION 7.10. At least 15 days before such record date, the Trustee shall mail to each Holder and the Company a notice that states the record date, the payment date and amount to be paid. SECTION 7.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 7.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to SECTION 7.07 or a suit by Holders of more than 10% in principal amount at maturity of the Notes. ARTICLE 8. TRUSTEE SECTION 8.01. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. Page 54 (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) this paragraph does not limit the effect of SECTION 8.01(B); (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to SECTION 7.05. (iv) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to SECTIONS 8.01(A), 8.01(B) and 8.01(C). (e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. (f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall extend to the Registrar, Notes Custodian, Paying Agent and an authenticating agent and be subject to the provisions of this SECTION 8.01 and to the provisions of the TIA. SECTION 8.02. RIGHTS OF TRUSTEE. (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; PROVIDED, HOWEVER, that the Trustee's conduct does not constitute willful misconduct or negligence. Page 55 (e) The Trustee may consult with counsel, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Notes shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (f) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other paper or document or as to whether or not an Event of Default shall have occurred unless requested in writing to do so by the Holders of not less than a majority in principal amount at maturity of the Notes at the time outstanding, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney. (g) The permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as a duty unless so specified herein. (h) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders, pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred therein or thereby. SECTION 8.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with SECTIONS 8.10 and 8.11. SECTION 8.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity, priority or adequacy of this Indenture, any Guarantee or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes, and it shall not be responsible for any statement of the Company or any Guarantor in this Indenture or in any document issued in connection with the sale of the Notes or in the Notes other than the Trustee's certificate of authentication. The Trustee shall not be responsible for any conduct or omission by the Company or any Guarantor or the occurrence of any Event of Default. SECTION 8.05. NOTICE OF DEFAULTS. If a Default occurs and is continuing and if it is actually known to the Trustee, the Trustee shall mail to each Holder notice of the Default ("NOTICE OF DEFAULT") within 30 days after it is known to a trust officer or written notice of it is received by the Trustee. Except in the case of a Default in payment of principal of or interest on any Note (including payments pursuant to the mandatory redemption provisions of such Note, if Page 56 any), the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of Holders. If a Notice of Default has been given to the Company by the Holders, a copy of such Notice of Default shall be delivered by the Company to the Trustee. Except as expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein, in any other Transaction Document or in any of the documents executed in connection with the Notes, or as to the existence of a Default or Event of Default hereunder or thereunder, and may assume that no such Default or Event of Default has occurred unless it has actual knowledge or received written notice thereof. SECTION 8.06. REPORTS BY TRUSTEE TO HOLDERS. As promptly as practicable after each year beginning with the year 2001 following the date of this Indenture, and in any event prior to February 1 in each year, the Trustee shall mail (if required by Section 313(a) of the TIA) to each Holder a brief report dated as of the preceding year that complies with Section 313(a) of the TIA. The Trustee shall also comply with Section 313(b) of the TIA. Following a Note Registration, a copy of each report at the time of its mailing to Holders shall be filed with the Commission and each stock exchange (if any) on which the Notes are listed. The Company agrees to notify promptly the Trustee whenever the Notes become listed on any stock exchange and of any delisting thereof. SECTION 8.07. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time reasonable and documented compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable and documented out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents, counsel, accountants and experts. The Company and each Guarantor, jointly and severally, shall indemnify the Trustee against any and all loss, liability or expense (including reasonable and documented attorneys' fees) incurred by or in connection with the administration of this trust and the performance of its duties hereunder. The Trustee shall notify the Company of any claim for which it may seek indemnity promptly upon obtaining actual knowledge thereof; PROVIDED, HOWEVER, that any failure so to notify the Company shall not relieve the Company of its indemnity obligations hereunder. The Company shall defend the claim and the indemnified party shall provide reasonable cooperation at the Company's expense in the defense. Such indemnified parties may have separate counsel and the Company and the Guarantors as applicable shall pay the fees and expenses of such counsel; PROVIDED, HOWEVER, that the Company shall not be required to pay such fees and expenses if it assumes such indemnified parties' defense and, in such indemnified parties' reasonable judgment, there is no conflict of interest between the Company and the Guarantors, as applicable, and such parties in connection with such defense. The Company need not reimburse any expense or indemnify against any loss, liability or expense incurred by an indemnified party through such party's own willful misconduct or negligence. Page 57 To secure the Company's payment obligations in this SECTION 8.07, the Trustee shall have a lien prior to the Notes on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of and interest and Special Interest, if any, on particular Notes. The Company's obligations pursuant to this SECTION 8.07 shall survive the satisfaction or discharge of this Indenture, any rejection or termination of this Indenture under any bankruptcy law or the resignation or removal of the Trustee. Without prejudice to any other rights available to the Trustee under applicable law, when the Trustee incurs expenses after the occurrence of a Default specified in SECTION 7.01(G) with respect to the Company, the expenses are intended to constitute expenses of administration under the Bankruptcy Law. All indemnifications and releases from liability granted hereunder to the Trustee shall extend to its officers, directors, employees, agents, successors and assigns. SECTION 8.08. REPLACEMENT OF TRUSTEE. (a) The Trustee may resign at any time by so notifying the Company in writing in accordance with the provisions of SECTION 13.02. Any resignation of the Trustee shall be effective immediately upon receipt by the Company of such notice (unless such notice shall specify a later time as the effective time of such resignation, in which case such later time shall be the effective time), and the resignation of the Trustee shall not prejudice any rights of the Trustee to receive any compensation, any reimbursement of any expenses or any indemnity or right to being defended and held harmless under this Indenture. The Holders of a majority in principal amount at maturity of the Notes may remove the Trustee by so notifying the Trustee and may appoint a successor Trustee. The Company shall remove the Trustee if: (i) the Trustee fails to comply with SECTION 8.10; (ii) the Trustee is adjudged bankrupt or insolvent; (iii) a receiver or other public officer takes charge of the Trustee or its property; or (iv) the Trustee otherwise becomes incapable of acting. (b) If the Trustee resigns, is removed by the Company or by the Holders of a majority in principal amount at maturity of the Notes and such Holders do not reasonably promptly appoint a successor Trustee, or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company shall promptly appoint a successor Trustee. (c) A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its Page 58 succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in SECTION 8.07. (d) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of 10% in principal amount at maturity of the Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. (e) If the Trustee fails to comply with SECTION 8.10, unless the Trustee's duty to resign is stayed as provided in TIA section 310(b), any Holder who has been a bona fide Holder of a Note for at least six months may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (f) Notwithstanding the replacement of the Trustee pursuant to this SECTION 8.08, the Company's obligations under SECTION 8.07 shall continue for the benefit of the retiring Trustee. SECTION 8.09. SUCCESSOR TRUSTEE BY MERGER. If the Trustee consolidates with, merges or converts into, or transfers or sells all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. In case at the time such successor or successors by merger, conversion, sale or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Notes shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Notes or in this Indenture provided that the certificate of the Trustee shall have. SECTION 8.10. ELIGIBILITY; DISQUALIFICATION. The Trustee shall at all times satisfy the requirements of TIA section 310(a). The Trustee shall have, or in the case of a corporation included in a bank holding company system, the related bank holding company shall have, a combined capital and surplus of at least $100.0 million as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA section 310(b), subject to its right to apply for a stay of its duty to resign under the penultimate paragraph of TIA section 310(b); PROVIDED, HOWEVER, that there shall be excluded from the operation of TIA section 310(b)(1) any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Company are outstanding if the requirements for such exclusion set forth in TIA section 310(b)(1) are met. SECTION 8.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE Company. The Trustee shall comply with TIA section 311(a), excluding any creditor relationship listed in TIA Page 59 section 311(b). A Trustee who has resigned or been removed shall be subject to TIA section 311(a) to the extent indicated. ARTICLE 9. DISCHARGE OF INDENTURE; DEFEASANCE SECTION 9.01. DISCHARGE OF LIABILITY ON NOTES; DEFEASANCE. (a) When (i) all outstanding Notes (other than Notes replaced or paid pursuant to SECTION 2.07) have been canceled or delivered to the Trustee for cancellation or (ii) all outstanding Notes have become due and payable, whether at maturity or as a result of the mailing of a notice of redemption pursuant to ARTICLE 3 hereof, and the Company irrevocably deposits with the Trustee funds in an amount sufficient, or U.S. Government Obligations, the principal of and interest on which will be sufficient, or a combination thereof sufficient, in the written opinion of a nationally recognized firm of independent public accountants delivered to the Trustee (which delivery shall only be required if U.S. Government Obligations have been so deposited), to pay the principal of and interest on the outstanding Notes when due at maturity or upon redemption of all outstanding Notes, including interest thereon to maturity or such Redemption Date (other than Notes replaced or paid pursuant to SECTION 2.07), and Special Interest, if any, and if in either case the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to SECTION 9.01(C), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel and at the cost and expense of the Company. (b) Subject to SECTIONS 9.01(C) and 9.02, the Company at any time may terminate (i) all of its obligations under the Notes and this Indenture ("LEGAL DEFEASANCE OPTION") or (ii) its obligations under SECTIONS 5.02, 5.03, 5.04, 5.05, 5.06, 5.07, 5.08, 5.09, 5.10 and 6.01 and the operation of 7.01(C), 7.01(D), 7.01(E), 7.01(F) and 7.01(G) ("COVENANT DEFEASANCE OPTION"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default. If the Company exercises its covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in Section 7.01(c), 7.01(D), 7.01(E), 7.01(F) or 7.01(G). Upon satisfaction of the conditions set forth herein and upon request of the Company, the Trustee shall acknowledge in writing the discharge of those obligations that the Company terminates. (c) Notwithstanding clauses (a) and (b) above, the Company's obligations in SECTIONS 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 8.07, 8.08 and in this ARTICLE 9 shall survive until the Notes have been paid in full. Thereafter, the Company's obligations in SECTIONS 8.07, 9.04 and 9.05 shall survive. Page 60 SECTION 9.02. CONDITIONS TO DEFEASANCE. (a) The Company may exercise its legal defeasance option or its covenant defeasance option only if: (i) the Company irrevocably deposits in trust with the Trustee money in an amount sufficient, or U.S. Government Obligations the principal of and interest on which will be sufficient, or a combination thereof sufficient, to pay the principal of and interest on the Notes when due at maturity or redemption, as the case may be, including interest thereon to maturity or such Redemption Date and Special Interest, if any; (ii) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal and interest when due on all the Notes to maturity or redemption, as the case may be; (iii) the Company shall have delivered to the Trustee an opinion of counsel to the effect that on the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (iv) the deposit does not constitute a default under any other agreement binding on the Company and is not prohibited by Article 11; (v) the Company delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940; (vi) in the case of the legal defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (1) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (2) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; (vii) in the case of the covenant defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; and Page 61 (viii) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Notes as contemplated by this ARTICLE 9 have been complied with. (b) Before or after a deposit, the Company may make arrangements satisfactory to the Trustee for the redemption of Notes at a future date in accordance with ARTICLE 3. SECTION 9.03. APPLICATION OF TRUST MONEY. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this ARTICLE 9. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the Notes. Money and securities so held in trust are not subject to Article 11 or Section 12.05. SECTION 9.04. REPAYMENT TO COMPANY. The Trustee and the Paying Agent shall promptly turn over to the Company upon request any money or U.S. Government Obligations held by it as provided in this ARTICLE 9 which, in the written opinion of a nationally recognized firm of independent public accountants delivered to the Trustee (which delivery shall only be required if U.S. Government Obligations have been so deposited), are in excess of the amount thereof which would then be required to be deposited to effect an equivalent discharge or defeasance in accordance with this ARTICLE 9. If money for the payment of principal of or interest on the Notes has been deposited with the Trustee or Paying Agent and remains unclaimed for two years after such amount is due and payable, the Trustee or Paying Agent shall pay the money back to the Company at its written request unless an abandoned property law designates another Person. After any such payment, the Trustee and the Paying Agent shall have no further liability for such funds and Holders entitled to the money must look only to the recipient and not to the Trustee for payment. SECTION 9.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS. The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations. SECTION 9.06. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this ARTICLE 9 by reason of any legal proceeding or by reason of any order or judgment of any court or Governmental Authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to this ARTICLE 9 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this ARTICLE 9; PROVIDED, HOWEVER, that, if the Company has made any payment of interest on principal of any Notes because of the reinstatement of its obligations, the Company shall be subrogated Page 62 to the rights of the Holders of such Notes to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE 10. AMENDMENTS SECTION 10.01. WITHOUT CONSENT OF HOLDERS. (a) The Company, the Guarantors and the Trustee may amend this Indenture or the Notes without notice to or consent of any Holder: (i) to cure any ambiguity, omission, defect or inconsistency; (ii) to provide for uncertificated Notes in addition to or in place of certificated Notes; PROVIDED, HOWEVER, that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code; (iii) to make any change in Article 11 or SECTION 12.05 that would limit or terminate the benefits available to any holder of Senior Indebtedness (or any Representative therefor) under Article 11 or SECTION 12.05; (iv) to add additional Guarantees with respect to the Notes; (v) to secure the Notes; (vi) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; (vii) to comply with any requirement of the Commission in connection with qualifying, or maintaining the qualification of, this Indenture under the TIA; (viii) to make any change that does not adversely affect the rights of any Holder; (ix) to provide for the issuance of the Exchange Notes, which shall have terms substantially identical in all material respects to the Initial Notes (except that the transfer restrictions contained in the Initial Notes shall be modified or eliminated, as appropriate), and which shall be treated, together with any outstanding Initial Notes, as a single issue of securities; or (x) to change the name or title of the Notes and any conforming changes related thereto. (b) No amendment under this SECTION 10.01 may make any change that adversely affects the rights under ARTICLE 11 or SECTION 12.05 of any holder of Senior Indebtedness then outstanding unless the Representative under the Credit Agreement or, in the Page 63 absence thereof, the holders holding a majority in principal amount of such Senior Indebtedness consent to such change. After an amendment under this SECTION 10.01 becomes effective, the Company shall mail to Holders a notice briefly describing such amendment. The failure to give such notice to all Holders, or any defect therein, shall not impair or affect the validity of an amendment under this SECTION 10.01. SECTION 10.02. WITH CONSENT OF HOLDERS. (a) The Company, the Guarantors and the Trustee may amend this Indenture or the Notes without notice to any Holder but with the written consent of the Holders of at least a majority in principal amount at maturity of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange for the Notes). However, without the consent of each Holder affected, an amendment may not: (i) reduce the principal amount of Notes whose Holders must consent to an amendment; (ii) reduce the rate of or extend the time for payment of interest or any Special Interest on any Note; (iii) reduce the principal amount of or extend the Stated Maturity of any Note; (iv) reduce the premium payable upon the redemption of any Note or change the time at which any Note may be redeemed in accordance with ARTICLE 3; (v) make any Note payable in money other than that stated in the Note; (vi) make any change in Article 11 or SECTION 12.05 that adversely affects the rights of any Holder under Article 11 or SECTION 12.05; (vii) impair the right of any holder to receive payment of principal of and interest or any Special Interest on such Holder's Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holder's Notes; (viii) make any change in SECTION 7.04 or 7.07 or the second sentence of this SECTION 10.02; or (ix) modify the Guarantees in any manner adverse to the Holders. It shall not be necessary for the consent of the Holders under this SECTION 10.02 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. Page 64 (b) No amendment under this SECTION 10.02 may make any change that adversely affects the rights under ARTICLE 11 or SECTION 12.05 of any holder of Senior Indebtedness then outstanding unless the Representative under the Credit Agreement or, in the absence thereof, the holders holding a majority in principal amount of such Senior Indebtedness consent to such change. After an amendment under this SECTION 10.02 becomes effective, the Company shall mail to Holders a notice briefly describing such amendment. The failure to give such notice to all Holders, or any defect therein, shall not impair or affect the validity of an amendment under this SECTION 10.02. SECTION 10.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment to this Indenture or the Notes shall comply with the TIA as then in effect. SECTION 10.04. REVOCATION AND EFFECT OF CONSENTS AND WAIVERS. (a) A consent to an amendment or a waiver by a Holder of a Note shall bind the Holder and every subsequent Holder of that Note or portion of the Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent or waiver is not made on the Note. However, any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder's Note or portion of the Note if the Trustee receives the notice of revocation before the date on which the Trustee receives an Officers' Certificate from the Company certifying that the requisite number of consents have been received. After an amendment or waiver becomes effective, it shall bind every Holder. An amendment or waiver becomes effective upon the (i) receipt by the Company or the Trustee of the requisite number of consents, (ii) satisfaction of conditions to effectiveness as set forth in this Indenture and any indenture supplemental hereto containing such amendment or waiver and (iii) execution of such amendment or waiver (or supplemental indenture) by the Company and the Trustee. (b) The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date. SECTION 10.05. NOTATION ON OR EXCHANGE OF NOTES. If an amendment changes the terms of a Note, the Trustee may require the Holder of the Note to deliver it to the Trustee. The Trustee may place an appropriate notation on the Note regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Note shall issue and the Trustee shall authenticate a new Note that reflects the changed terms. Failure to make the appropriate notation or to issue a new Note shall not affect the validity of such amendment. Page 65 SECTION 10.06. TRUSTEE TO SIGN AMENDMENTS. The Trustee shall sign any amendment authorized pursuant to this ARTICLE 10 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and to receive, and (subject to SECTION 8.01) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture and that such amendment is the legal, valid and binding obligation of the Company and the Guarantors enforceable against them in accordance with its terms, subject to customary exceptions, and complies with the provisions hereof (including SECTION 10.03). ARTICLE 11. SUBORDINATION OF NOTES SECTION 11.01. NOTES SUBORDINATE TO SENIOR INDEBTEDNESS. The Company covenants and agrees, and each Holder of a Note, by its acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this ARTICLE 11, the payment of all Obligations under the Notes (the "SUBORDINATED OBLIGATIONS") are hereby expressly made subordinate and subject in right of payment to the prior payment in full in cash or Cash Equivalents of all Senior Indebtedness of the Company. The provisions of this ARTICLE 11 shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Senior Indebtedness is rescinded or must otherwise be returned by a holder of Senior Indebtedness upon any Proceeding or otherwise, all as though such payment had not been made. SECTION 11.02. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC. In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization, adjustment, composition or other similar case or proceeding in connection therewith, relative to the Company or to its creditors, as such, or to its assets, or (b) any liquidation, dissolution or other winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshaling of assets and liabilities of the Company, then and in any such event specified in clause (a), (b) or (c) above (each such event, if any, herein sometimes referred to as a "PROCEEDING") the holders of Senior Indebtedness shall be entitled to receive or retain payment in full in cash or Cash Equivalents of all amounts due or to become due on or in respect of all Senior Indebtedness, before the Trustee on behalf of the Holders of the Notes or the Holders of the Notes are entitled to receive any payment or distribution of any kind or character, whether in cash, property or securities, on account of Subordinated Obligations, including, without limitation, principal of (or premium, if any) or interest (including any Special Interest) on or other obligations in respect of the Notes (including any interest and any Special Interest accruing on or after the filing of any Proceeding relating to the Company, whether or not allowed in such Proceeding) or on account of any purchase or other acquisition of Notes by the Company or any Subsidiary of the Company (all such payments, distributions, purchases and acquisitions, whether payable in any Proceeding or otherwise, herein referred to, individually and collectively, as a "NOTES PAYMENT"), and to that end the holders of Senior Indebtedness shall be entitled to Page 66 receive, for application to the payment thereof, any Notes Payment which may be payable or deliverable in respect of the Subordinated Obligations in any such Proceeding. In the event that, notwithstanding the foregoing provisions of this SECTION 11.02, the Holder of any Note or the Trustee on behalf of the Holders of the Notes shall have received any Notes Payment before all Senior Indebtedness of the Company is paid in full in cash or Cash Equivalents, then and in such event such Notes Payment shall be paid over or delivered forthwith to the trustee in bankruptcy or other person making payment or distribution of assets of the Company for the application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay the Senior Indebtedness in full in cash or Cash Equivalents, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. For purposes of this ARTICLE 11 only (including for purposes of the definition of "NOTES PAYMENT") the words "any payment or distribution of any kind or character, whether in cash, property or securities" shall not be deemed to include a payment or distribution of stock or securities of the Company provided for by a plan of reorganization or readjustment authorized by an order or decree of a court of competent jurisdiction in a reorganization proceeding under any applicable bankruptcy law or of any other corporation provided for by such plan of reorganization or readjustment which stock or securities are subordinated in right of payment to all then outstanding Senior Indebtedness to substantially the same extent as, or to a greater extent than, the Notes are so subordinated as provided in this ARTICLE 11. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the conveyance or transfer of all or substantially all of its properties and assets as an entirety to another Person upon the terms and conditions set forth in SECTION 6.01 shall not be deemed a Proceeding for the purposes of this SECTION 11.02 if the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer such properties and assets, as the case may be, shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions set forth in SECTION 6.01. The Representative under the Credit Agreement (or in the absence thereof, a designated Representative for the holders of the Senior Indebtedness specified as such in a notice to the Trustee) shall have the right to request the Holders to file and, in the event that a Holder fails to do so within 10 days, is hereby authorized to file, a proper claim or proof of debt in the form required in any Proceeding for and on behalf of such Holder (including on behalf of each such Holder with respect to any such rights received by such Holder from holders of Indebtedness of the Company due to such Indebtedness being subordinated to the Subordinated Obligations), to accept and receive any payment or distribution which may be payable or deliverable at any time upon or in respect of the Subordinated Obligations in an amount not in excess of the Senior Indebtedness then outstanding and to take such other action as may be reasonably necessary to effectuate the foregoing. Trustee and each Holder shall provide to the Representative under the Credit Agreement all information and documents reasonably necessary to present claims or seek enforcement as aforesaid. Notwithstanding the foregoing, each other Holder shall retain the right to vote to accept or reject any plan of partial or complete liquidation, reorganization, arrangement, composition or extension; PROVIDED that such Holder shall not take Page 67 any action or vote in any way so as to contest the enforceability of this ARTICLE 11 or the Senior Indebtedness. The Representative under the Credit Agreement and each holder of the Senior Indebtedness shall retain the right to vote its Senior Indebtedness to accept or reject any plan of partial or complete liquidation, reorganization, arrangement, composition or extension; PROVIDED that such Representative or such holder shall not take any action or vote in any way so as to contest the enforceability of this ARTICLE 11 or the Subordinated Obligations. SECTION 11.03. NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT. In the event that any Senior Payment Default (as defined below) shall have occurred and be continuing, then no Notes Payment shall be made unless and until such Senior Payment Default shall have been cured or waived or shall have ceased to exist or all amounts then due and payable in respect of Senior Indebtedness shall have been paid in full in cash or Cash Equivalents. "SENIOR PAYMENT DEFAULT" means any default in the payment of principal of (or premium, if any), interest or fees on Designated Senior Indebtedness when due, whether at the due date of any such payment or by declaration of acceleration, prepayment, call for redemption or otherwise. Upon the occurrence of a Senior Nonmonetary Default and receipt of written notice by the Trustee of the occurrence of such Senior Nonmonetary Default from the Representative under the Credit Agreement (or, if the Credit Agreement is not then in effect, a designated Representative for the holders of the Designated Senior Indebtedness which is the subject of such Senior Nonmonetary Default specified as such in a notice to the Trustee), no Notes Payment may be made during a period (the "PAYMENT BLOCKAGE PERIOD") commencing on the date of the receipt by the Trustee of such notice and ending the earlier of (i) the date on which such Senior Nonmonetary Default shall have been cured or waived or ceased to exist or all Designated Senior Indebtedness which was the subject of such Senior Nonmonetary Default shall have been paid in full in cash or Cash Equivalents and (ii) the 179th day after the date of the receipt of such notice. No Senior Nonmonetary Default that existed or was continuing on the date of the commencement of a Payment Blockage Period may be made the basis of the commencement of a subsequent Payment Blockage Period whether or not within a period of 360 consecutive days, unless such Senior Nonmonetary Default shall have been cured for a period of not less than 90 consecutive days; PROVIDED, HOWEVER, any breach of any financial covenant for a period commencing after the expiration of a Payment Blockage Period that would give rise to a new event of default, even though such breach is a breach of a provision under which a prior event of default previously existed, shall constitute a new event of default for this purpose. In any event, notwithstanding the foregoing, no more than one Payment Blockage Period may be commenced during any 360-day period and there shall be a period of at least 181 days during each 360-day period when no Payment Blockage Period is in effect. "SENIOR NONMONETARY DEFAULT" means the occurrence or existence and continuance of an event of default with respect to Designated Senior Indebtedness, other than a Senior Payment Default, that permits the holders of the Designated Senior Indebtedness (or a trustee or other agent on behalf of the holders thereof) then to declare such Designated Senior Indebtedness due and payable prior to the date on which it would otherwise become due and payable. The failure to make any payment on the Notes by reason of the provisions of this SECTION 11.03 will not be construed as preventing the occurrence of an Event of Default with Page 68 respect to the Notes arising from any such failure to make payment. Upon termination of any period of Payment Blockage Period the Company shall resume making any and all required payments in respect of the Notes, including any missed payments. In the event that, notwithstanding the foregoing, the Company shall make any Notes Payment to the Trustee on behalf of the Holders or to any Holder prohibited by the foregoing provisions of this SECTION 11.03, then and in such event such Notes Payment shall be paid over and delivered forthwith to the holders of the Senior Indebtedness of the Company in the same form received and, until so turned over, the same shall be held in trust by the Trustee on behalf of the Holders or such Holder as the property of the holders of the Senior Indebtedness. By reason of such subordination, in the event of insolvency by the Company, unsubordinated creditors of the Company who are not holders of Senior Indebtedness or of the Notes may recover less, ratably, than holders of Senior Indebtedness and more, ratably, than Holders of the Notes. The provisions of this SECTION 11.03 shall not apply to any Notes Payment with respect to which SECTION 11.02 would be applicable. SECTION 11.04. PAYMENT PERMITTED IF NO DEFAULT. Nothing contained in this ARTICLE 11 or elsewhere in this Indenture or in any of the Notes shall prevent the Company, at any time except during the pendency of any Proceeding referred to in SECTION 11.02 or under the conditions described in SECTION 11.03 or described in the proviso to the first sentence of SECTION 7.02, from making Notes Payments. The Trustee and the Required Holders shall give a prompt notice of any acceleration of the Notes to the Representative under the Credit Agreement (or, in the absence thereof, to a designated Representative of the Senior Indebtedness.) SECTION 11.05. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS. Only after the payment in full in cash or Cash Equivalents of all amounts due or to become due on or in respect of Senior Indebtedness of the Company and, unless the holders of Senior Indebtedness shall have the ability to terminate such commitments, the termination of all commitments in respect thereof, the Holders of the Notes shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to such Senior Indebtedness until the principal of (and premium, if any) and interest on the Notes shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of the Company of any cash, property or securities to which the Holders of the Notes or the Trustee on their behalf would be entitled except for the provisions of this ARTICLE 11, and no payments pursuant to the provisions of this ARTICLE 11 to the holders of Senior Indebtedness by Holders of the Notes or the Trustee on their behalf, shall, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Notes, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness of the Company. SECTION 11.06. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. The provisions of this ARTICLE 11 are and are intended solely for the purpose of defining the relative rights of the Holders on the one hand and the holders of Senior Indebtedness on the other hand. Nothing Page 69 contained in this ARTICLE 11 or elsewhere in this Indenture or in the Notes is intended to or shall (a) impair, as among the Company, its creditors (other than holders of Senior Indebtedness) and the Holders of the Notes, the obligation of the Company, which is absolute and unconditional (and which, subject to the rights under this ARTICLE 11 of the holders of Senior Indebtedness, is intended to rank equally with all other general unsecured obligations of the Company), to pay to the Holders of the Notes the principal of (and premium, if any) and interest on the Notes as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Notes and creditors of the Company other than the holders of Senior Indebtedness; or (c) prevent the Holder of any Note from exercising (subject to the proviso to the first sentence of SECTION 7.02) all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this ARTICLE 11 of the holders of Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to such Holder or the Trustee on behalf of the Holders. SECTION 11.07. NO WAIVER OF SUBORDINATION PROVISIONS. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company or any Holder with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing, the holders of the Senior Indebtedness may at any time and from time to time, without the consent of or the notice to the Holders, without incurring responsibility to the Holders and without impairing or releasing the subordination provided in this ARTICLE 11 or the obligations hereunder of the Holders to the holders of the Senior Indebtedness, do any one or more of the following: (a) subject to the limitations on Senior Indebtedness contained in the definition thereof or in SECTION 5.04 or SECTION 5.10, change the manner, place or terms of payment or extend the time of payment of, or alter, Senior Indebtedness or any instrument evidencing the same or any agreement under which such Senior Indebtedness is outstanding; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (c) release any Person liable in any manner for the collection of the Senior Indebtedness; and (d) exercise or refrain from exercising or waiving any rights, powers or remedies against the Company and any other Persons. SECTION 11.08. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT. Upon any payment or distribution of assets or securities of the Company referred to in this ARTICLE 11, the Trustee and the Holders of the Notes shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Holders of Notes, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this ARTICLE 11. Page 70 SECTION 11.09. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON SUBORDINATION PROVISIONS. Each Holder of a Note, by accepting such Note, acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Indebtedness, whether such Senior Indebtedness was created or acquired before or after the issuance of the Note, to acquire and continue to hold, or to continue to hold, such Senior Indebtedness, and such holder of such Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Indebtedness. SECTION 11.10. TRUST MONIES NOT SUBORDINATED. Notwithstanding anything contained herein to the contrary, payments from money or the proceeds of U.S. Government Obligations held in trust under ARTICLE 9 by the Trustee for the payment of principal of and interest on the Notes and Special Interest, if any, in respect thereof shall not be subordinated to the prior payment of any Senior Indebtedness of the Company or subject to the restrictions set forth in this ARTICLE 11, and none of the Holders shall be obligated to pay over any such amount to the Company or any holder of Senior Indebtedness of the Company or any other creditor of the Company. SECTION 11.11. TRUSTEE TO EFFECTUATE SUBORDINATION. Each Holder by accepting a Note authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Holders and the holders of Senior Indebtedness of the Company as provided in this ARTICLE 11 and appoints the Trustee as attorney-in-fact for any and all such purposes. SECTION 11.12. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness of the Company and shall not be liable to any such holders if it shall mistakenly pay over or distribute to Holders or the Company or any other Person, money or assets to which any holders of Senior Indebtedness of the Company shall be entitled by virtue of this ARTICLE 11 or otherwise. SECTION 11.13. THIRD PARTY BENEFICIARY; NO AMENDMENT. The provisions of this ARTICLE 11 (including the defined terms used herein) are for the benefit of the holders of any Senior Indebtedness and shall be enforceable by each of them directly against any Holder and may not be amended without the consent of the Representative under the Credit Agreement or, in the absence thereof, the holders holding the majority in principal amount of such Senior Indebtedness. SECTION 11.14. TRUSTEE'S COMPENSATION NOT PREJUDICED. Nothing in this ARTICLE 11 shall apply to amounts due to the Trustee pursuant to other sections of this Indenture. SECTION 12. GUARANTEES SECTION 12.01. GUARANTEES. Each of the Guarantors hereby, jointly and severally, unconditionally guarantees, on a senior subordinated basis, to each Holder of a Note executed Page 71 and delivered by the Company, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (a) the principal of and premium and interest, including any Special Interest, on the Notes shall be promptly paid in full when due, whether at Stated Maturity, by acceleration, redemption or otherwise, and interest and Special Interest on the overdue principal of (and any premium) and interest on the Notes, and all other obligations of the Company to the Holders hereunder or thereunder shall be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same shall be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at Stated Maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. The Guarantors hereby agree that their obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a prior proceeding against the Company, protest, notice and all demands whatsoever and covenant that this Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and this Indenture. If any Holder is required by any court or otherwise to return to the Company or Guarantors, or any Custodian, trustee, liquidator or other similar official acting in relation to either the Company or Guarantors, any amount paid by such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders of Notes in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders, on the other hand, (a) the Maturity of the obligations guaranteed hereby may be accelerated as provided in ARTICLE 12 for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby and (b) in the event of any declaration of acceleration of such obligations as provided in ARTICLE 12, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Guarantee. The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under this Guarantee. SECTION 12.02. EXECUTION AND DELIVERY OF THIS INDENTURE AND SUPPLEMENTAL GUARANTEES. To evidence its Guarantee set forth in Section 12.01, each Guarantor hereby agrees that this Indenture shall be executed on behalf of such Guarantor by its President or one of its Vice Presidents and, to the extent not a party to this Indenture on the date hereof, each Guarantor shall execute and deliver to the Holders a Supplemental Guarantee ("SUPPLEMENTAL GUARANTEE") substantially in the form of EXHIBIT C hereto, pursuant to which such Guarantor, shall become a Guarantor under this ARTICLE 12 and shall guarantee the Obligations of the Company under this Page 72 Indenture and the Notes and shall become a party to the Exchange and Registration Rights Agreement. Concurrently with the execution and delivery of such Supplemental Guarantee, such Guarantor shall deliver to the Trustee an Opinion of Counsel that the foregoing have been duly authorized, executed and delivered by such Guarantor and that such Guarantor's Guarantee is a valid and legally binding obligation of such Guarantor, enforceable against such Guarantor in accordance with its terms. If an officer whose signature is on this Indenture or on a Supplemental Guarantee no longer holds that office at the time the Company executes and delivers the Note on which a Guarantee is endorsed, the Guarantee shall be valid nevertheless. The execution and delivery of any Note by the Company shall constitute due delivery of the Guarantee set forth in this Indenture on behalf of the Guarantors. SECTION 12.03. GUARANTORS MAY CONSOLIDATE, ETC. ON CERTAIN TERMS. No Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another corporation, Person or entity (other than the Company or another Guarantor) unless: (a) subject to the provisions of SECTION 12.04, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) unconditionally assumes all the obligations of such Guarantor under the Notes and this Indenture pursuant to a Supplemental Guarantee, in form and substance reasonably satisfactory to the Holders; (b) immediately after giving effect to such transaction, no Default or Event of Default exists; (c) such Guarantor, or any Person formed by or surviving any such consolidation or merger, would have Consolidated Net Worth (immediately after giving effect to transaction), equal to or greater than the Consolidated Net Worth of such Guarantor immediately preceding the transaction; and (d) the Company would be permitted immediately after giving effect to such transaction, to Incur at least $1.00 of additional Indebtedness pursuant to the Coverage Ratio Test set forth in SECTION 5.04(A). Notwithstanding the foregoing, no Guarantor shall be permitted to consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another corporation, Person or entity pursuant to the preceding sentence if such consolidation or merger would not be permitted by ARTICLE 6. In case of any such consolidation or merger and upon the assumption by the person surviving such consolidation or merger, by supplemental agreement, executed and delivered to the Holders and satisfactory in form to the Holders, of the Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor corporation shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Page 73 Such successor corporation thereupon may cause to be signed any or all of the Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company. All the Guarantees so issued shall in all respects have the same legal rank and benefit under this Indenture as the Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Guarantees had been issued at the date of the execution hereof. Except as set forth in ARTICLE 5 or ARTICLE 6, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company. SECTION 12.04. RELEASES OF GUARANTEES. In the event of (i) a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise in a transaction that complies with the provisions of SECTION 12.03 or, (ii) a sale or other disposition of all of the capital stock of any Guarantor, such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation, distribution or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all of the assets of such Guarantor) will be released and relieved of any obligations under its Guarantee; PROVIDED that the Net Proceeds of such sale or other disposition shall be applied in accordance with the provisions of SECTION 5.05. Any Guarantor not released from its obligations under its Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this SECTION 14.4. SECTION 12.05. SUBORDINATION OF GUARANTEES. The Obligations of each Guarantor under its Guarantee pursuant to this ARTICLE 12 shall be junior and subordinated in right of payment to the prior payment in full in cash or Cash Equivalents of the Guarantor Senior Indebtedness of such Guarantor on the same basis and to the same extent as the Subordinated Obligations are junior and subordinated in right of payment to Senior Indebtedness of the Company pursuant to ARTICLE 11, MUTATIS MUTANDIS, and the provisions of ARTICLE 11 are incorporated MUTATIS MUTANDIS in this ARTICLE 12 by this reference. For the purposes of the foregoing sentence, the Holders and the Trustee on behalf of the Holders shall have the right to receive and/or retain payments by any of the Guarantors only at such times as they may receive and/or retain payments in respect of the Notes pursuant to this Indenture, including ARTICLE 11. SECTION 12.06. LIMITATION ON GUARANTOR LIABILITY. Each Guarantor, and by its acceptance of the Notes, each Holder, hereby confirms that it is the intention of all such parties that the Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Guarantee. To effectuate the foregoing intention, the Holders and the Guarantors hereby irrevocably agree that the obligations of such Guarantor under its Guarantee and this ARTICLE 12 shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to Page 74 any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this SECTION 12.06, result in the obligations of such Guarantor under its Guarantee not constituting a fraudulent transfer or conveyance. SECTION 12.07. ENDORSEMENT OF GUARANTEES. To evidence its Guarantee set forth in SECTION 12.01, each Guarantor hereby agrees that a notation of such Guarantee ("NOTATION OF GUARANTEE") substantially in the form of EXHIBIT D to this Indenture shall be endorsed by an officer of such Guarantor on each Note authenticated and delivered by the Company. Each Guarantor hereby agrees that its Guarantee set forth in SECTION 12.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a Notation of Guarantee. ARTICLE 13. MISCELLANEOUS SECTION 13.01. TRUST INDENTURE ACT CONTROLS. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with the duties imposed by, or with another provision (an "incorporated provision") included in this Indenture by operation of TIA sections 310 to 318, inclusive, such imposed duties or incorporated provision shall control. SECTION 13.02. NOTICES. Any notice or communication shall be in writing and delivered in person, mailed by first-class mail addressed as follows or transmitted via telecopy (or other facsimile device) with receipt confirmed as set forth below: if to the Company: Vicar Operating, Inc. 12401 West Olympic Boulevard Los Angeles, California 90064-1022 Attention: Thomas Fuller (telecopier no.: (310) 584-6704) with copies to: Leonard Green & Partners, L.P. 11111 Santa Monica Blvd. Los Angeles, California 90025 Attention: John G. Danhakl (telecopier no.: (310) 954-0404) and Page 75 Irell & Manella LLP 1800 Avenue of the Stars, Suite 900 Los Angeles, California 90067 Attention: J. Christopher Kennedy (telecopier no.: (310) 203-7199) if to the Trustee: Chase Manhattan Bank and Trust Company, National Association 101 California Street, Suite 2725 San Francisco, California 94111 Attention: James Nagy (telecopier no.: (415) 693-8850) The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Holder shall be mailed , first class mail, to the Holder at the Holder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 13.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. Holders may communicate pursuant to TIA section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA section 312(c). SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take or refrain from taking any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate in form reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel in form reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Page 76 SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture (other than pursuant to Section 4.05) shall include: (a) a statement that the individual making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with. SECTION 13.06. WHEN NOTES DISREGARDED. In determining whether the Holders of the required principal amount at maturity of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, any Guarantor or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any Guarantor shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes which the Trustee knows are so owned shall be so disregarded. Subject to the foregoing, only Notes outstanding at the time shall be considered in any such determination. SECTION 13.07. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR. The Trustee may make reasonable rules for action by or a meeting of Holders. The Registrar and the Paying Agent may make reasonable rules for their functions. SECTION 13.08. LEGAL HOLIDAYS. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If a Regular Record Date is a Legal Holiday, the record date shall not be affected. SECTION 13.09. GOVERNING LAW. THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Page 77 SECTION 13.10. NO RECOURSE AGAINST OTHERS. A director, officer, employee, stockholder or member, as such, of the Company or any of the Guarantors shall not have any liability for any obligations of the Company or any of the Guarantors under the Notes or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Note, each Holder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Notes. SECTION 13.11. SUCCESSORS. All agreements of the Company and each Guarantor in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 13.12. MULTIPLE ORIGINALS; COUNTERPARTS. The parties may sign any number of counterparts of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture. SECTION 13.13. TABLE OF CONTENTS; HEADINGS. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. SECTION 13.14. INCORPORATION. All Exhibits and Schedules attached hereto are incorporated as part of this Indenture as if fully set forth herein. SECTION 13.15. INTENT TO LIMIT INTEREST TO MAXIMUM. In no event shall the interest rate payable on the Notes under this Indenture, plus any other amounts paid by the Company to the Holders in connection therewith, exceed the highest rate permissible under law that a court of competent jurisdiction shall, in the final determination, deem applicable. The Company and the Trustee, in executing and delivering this Indenture, intend legally to agree upon the rate or rates of interest and the manner of payment stated within it; PROVIDED, HOWEVER, that, anything contained herein to the contrary notwithstanding, if said rate or rates of interest or manner of payment exceed the maximum allowable under applicable law, then, IPSO FACTO as of the date of this Indenture, the Company is and shall be liable only for the payment of such maximum as allowed by law, and payment received from the Company in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of any Notes then outstanding to the extent of such excess, or, if such excess exceeds the then outstanding principal balance, such excess shall be first set-off against any other amounts then due and owing by the Company and refunded to the Company. Page 78 IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. VICAR OPERATING, INC. By: /S/ ROBERT L. ANTIN ----------------------------------- Name: Robert L. Antin Title: GUARANTORS: By their signature below, the officers of the corporate Guarantors and of the corporate general partners of the limited partnership Guarantors hereby execute this Indenture on behalf of each of the below-listed entities. CORPORATE GUARANTORS AAH Merger Corporation Academy Animal, Inc. Anderson Animal Hospital, Inc. Animal Clinic of Santa Cruz, Inc. Animal Emergency Clinic, P.C. Beaumont Veterinary Associates, P.C. BerLa, Inc. Cacoosing Animal Hospital, Ltd. Cacoosing Pet Care & Nutrition Center, Inc. Clarmar Animal Hospital, Inc. Detwiler Veterinary Clinic, Inc. Diagnostic Veterinary Service, Inc. Eagle Park Animal Clinic, Inc. Eagle River Veterinary Hospital, Inc. Edgebrook, Inc. Florida Veterinary Laboratories, Inc. Fox Chapel Animal Hospital, Inc. Freehold, Inc. Glen Animal Hospital, Inc. Golden Merger Corporation H.B. Animal Clinics, Inc. Highlands Animal Hospital, , Inc. Howell Branch Animal Hospital, P.A. Lake Jackson Veterinary Hospital, Inc. Lakewood Animal Hospital, Inc. Lammers Veterinary Hospital, Inc. Lewelling Veterinary Clinic, Inc. Miller Animal Hospital M.S. Animal Hospitals, Inc. Newark Animal Hospital, Inc. Northern Animal Hospital, Inc. North Rockville Veterinary Hospital, Inc. Northside Animal Hospital, P.C. Noyes Animal Hospital, Inc. Oak Hill Veterinary Hospital, Inc. Old Town Veterinary Animal Hospital, Inc. Pet Practice (Massachusetts), Inc. Pets' Rx, Inc. Pets' Rx Nevada, Inc. PPI of Pennsylvania, Inc. Princeton Animal Hospital, Inc. Professional Veterinary Services, Inc. Riviera Animal Hospital, Inc. Robertson Blvd. Animal Hospital, Inc. Rossmoor Center Animal Clinic, Inc. Rossmoor - El Dorado Animal Hospital, Inc. San Vicente Animal Clinic Silver Spur Animal Hospital, Inc. South County Veterinary Clinic, Inc. Spanish River Animal Hospital, Inc. Tampa Animal Medical Center, Inc. The Pet Practice (Florida), Inc. The Pet Practice (Illinois), Inc. The Pet Practice (Massachusetts), Inc. The Pet Practice of Michigan, Inc. VCA Alabama, Inc. VCA Albany Animal Hospital, Inc. VCA Albuquerque, Inc. VCA All Pets Animal Complex, Inc. VCA Alpine Animal Hospital, Inc. VCA Anderson of California Animal Hospital, Inc. VCA Animal Hospitals, Inc. VCA Animal Hospital West, Inc. VCA APAC Animal Hospital, Inc. VCA - Asher, Inc. VCA Bay Area Animal Hospital, Inc. VCA Cacoosing Animal Hospital, Inc. VCA Castle Shannon Veterinary Hospital, Inc. VCA Centers-Texas, Inc. VCA Cenvet, Inc. VCA Clarmar Animal Hospital, Inc. VCA Clinical Veterinary Labs, Inc. VCA Clinipath Labs, Inc. VCA Closter, Inc. VCA Detwiler Animal Hospital, Inc. VCA Dover Animal Hospital, Inc. VCA Eagle River Animal Hospital, Inc. VCA East Anchorage Animal Hospital, Inc. VCA Golden Cove Animal Hospital, Inc. VCA Howell Branch Animal Hospital, Inc. VCA Greater Savannah Animal Hospital, Inc. VCA Information Systems, Inc. VCA Kaneohe Animal Hospital, Inc. VCA Lakeside Animal Hospital, Inc. VCA Lamb and Stewart Animal Hospital, Inc. VCA Lammers Animal Hospital, Inc. VCA Lewis Animal Hospital, Inc. VCA Marina Animal Hospital, Inc. VCA Miller Animal Hospital, Inc. VCA - Mission, Inc. VCA Northboro Animal Hospital, Inc. VCA Northwest Veterinary Diagnostics, Inc. VCA of Colorado-Anderson, Inc. VCA of New York, Inc. VCA of San Jose, Inc. VCA of Teresita, Inc. VCA Professional Animal Laboratory, Inc. VCA Real Property Acquisition Corporation VCA Referral Associates Animal Hospital, Inc. VCA Rohrig Animal Hospital, Inc. VCA - Rossmoor, Inc. VCA St. Petersburg Animal Hospital, Inc. VCA Silver Spur Animal Hospital, Inc. VCA South Shore Animal Hospital, Inc. VCA Specialty Pet Products, Inc. VCA Squire Animal Hospital, Inc. VCA Texas Management, Inc. VCA Wyoming Animal Hospital, Inc. Veterinary Hospitals, Inc. West Los Angeles Veterinary Medical Group, Inc. Westwood Dog & Cat Hospital W.E. Zuschlag, D.V.M., Worth Animal Hospital, Chartered William C. Fouts, D.V.M., Ltd. Wingate, Inc. By: /S/ ROBERT L. ANTIN ------------------------------------------- Name: Robert L. Antin Title: Chief Executive Officer and President By: /S/ TOMAS W. FULLER ------------------------------------------- Name: Tomas W. Fuller Title: Chief Financial Officer and Assistant Secretary LIMITED PARTNERSHIP GUARANTORS VCA Villa Animal Hospital, L.P. By: VCA Animal Hospitals, Inc., General Partner By: /S/ ROBERT L. ANTIN ------------------------------------------ Name: Robert L. Antin Title: Chief Executive Officer and President By: /S/ TOMAS W. FULLER ------------------------------------------ Name: Tomas W. Fuller Title: Chief Financial Officer and Assistant Secretary Veterinary Centers of America - Texas, L.P. By: VCA Centers-Texas, Inc., General Partner By: /S/ ROBERT L. ANTIN ------------------------------------------ Name: Robert L. Antin Title: Chief Executive Officer and President By: /S/ TOMAS W. FULLER ------------------------------------------ Name: Tomas W. Fuller Title: Chief Financial Officer and Assistant Secretary CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION By: /S/ JAMES NAGY ------------------------------------------ Name: James Nagy Title: Assistant Vice President APPENDIX A PROVISIONS RELATING TO INITIAL NOTES AND EXCHANGE NOTES 1. DEFINITIONS 1.1 DEFINITIONS For the purposes of this Appendix A the following terms shall have the meanings indicated below: "EXCHANGE AND REGISTRATION RIGHTS AGREEMENT" means the Exchange and Registration Rights Agreement, dated as of September 20, 2000, by and among the Company, the Guarantors and the Purchasers. "DEFINITIVE NOTE" means a certificated Initial Note or Exchange Note (bearing the Restricted Notes Legend if the transfer of such Note is restricted by Applicable Law) that does not include the Global Notes Legend. "DEPOSITARY" means The Depository Trust Company, its nominees and their respective successors. "GLOBAL NOTES LEGEND" means the legend set forth under that caption in Exhibit B to this Indenture. "INSTITUTIONAL ACCREDITED INVESTOR" means an institutional "accredited investor" as described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "NOTES" under the Indenture include the Initial Notes and any Exchange Notes issued in exchange for Initial Notes. "NOTES CUSTODIAN," who shall initially be the Trustee, means the custodian with respect to a Global Exchange Note (as appointed by the Depositary) or any successor person thereto. "PURCHASE AGREEMENT" means the Purchase Agreement, dated as of the Closing Date, by and among the Company and the Purchasers. "PURCHASERS" means GS Mezzanine Partners II, L.P., a Delaware limited partnership, GS Mezzanine Partners II Offshore, L.P., an exempted limited partnership organized under the laws of the Cayman Islands, TCW Leveraged Income Trust, L.P., a Delaware limited partnership, TCW Leveraged Income Trust II, L.P., a Delaware limited partnership, TCW Leveraged Income Trust IV, L.P., a Delaware limited partnership, TCW/Crescent Mezzanine Page 1 Partners II, L.P., a Delaware limited partnership, TCW/Crescent Mezzanine Trust II, a closed-end Delaware statutory business trust, and The Northwestern Mutual Life Insurance Company, a Wisconsin corporation. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "REGISTERED EXCHANGE OFFER" means the offer by the Company, pursuant to the Exchange and Registration Rights Agreement, to certain Holders of Initial Notes, to issue and deliver to such Holders, in exchange for their Initial Notes, a like aggregate principal amount at maturity of Exchange Notes registered under the Securities Act. "REGULATION S" means Regulation S under the Securities Act. "RESTRICTED NOTES LEGEND" means the legend set forth in PARAGRAPH 2.3(D)(I) herein. "RULE 501" means Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "RULE 144A" means Rule 144A under the Securities Act. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHELF REGISTRATION STATEMENT" means a registration statement filed by the Company in connection with the offer and sale of Initial Notes pursuant to the Exchange and Registration Rights Agreement. "TRANSFER RESTRICTED NOTES" means Definitive Notes and any other Notes that bear or are required to bear the Restricted Notes Legend. 1.2 OTHER DEFINITIONS TERM: DEFINED IN SECTION: ----- ------------------- "AGENT MEMBERS" 2.1(c) "INITIAL DEFINITIVE NOTES" 2.1(b) "GLOBAL EXCHANGE NOTE" 2.1(b) 2. THE NOTES 2.1 FORM AND DATING (a) The Initial Notes issued on the date hereof will be sold by the Company pursuant to the Purchase Agreement to the Purchasers. Such Initial Notes may thereafter be Page 2 transferred to, among others, QIBs, purchasers in reliance on Regulation S and, except as set forth below, Institutional Accredited Investors in accordance with Rule 501. (b) The Initial Notes shall be issued in the form of Definitive Notes, in fully registered form (the "INITIAL DEFINITIVE NOTES") bearing the Restricted Notes Legend and shall be issued to and registered in the name of the applicable Purchaser and duly executed by the Company and authenticated by the Trustee as provided in this Indenture. Initial Notes will be exchanged for Exchange Notes in the Registered Exchange Offer pursuant to the Exchange and Registration Rights Agreement. Exchange Notes will also be issued upon the sale of Initial Notes (i) under a Shelf Registration Statement or (ii) at any time that the Initial Notes being sold are not Transfer Restricted Notes. Exchange Notes shall, except as provided in SECTIONS 2.3 and 2.4, be issued in global form bearing the Global Notes Legend (the "GLOBAL EXCHANGE NOTES"). The aggregate principal amount at maturity of the Global Exchange Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee and on the schedules thereto as hereinafter provided. (c) BOOK-ENTRY PROVISIONS. This PARAGRAPH 2.1(C) shall apply only to a Global Exchange Note deposited with or on behalf of the Depositary. The Company shall execute and the Trustee shall, in accordance with this PARAGRAPH 2.1(C) and PARAGRAPH 2.2 and pursuant to an order of the Company signed by one officer, authenticate and deliver one Global Exchange Note that (i) shall be registered in the name of the Depositary for such Global Exchange Note or the nominee of such Depositary and (ii) shall be delivered by the Trustee to such Depositary or pursuant to such Depositary's instructions or held by the Trustee as Notes Custodian. Members of, or participants in, the Depositary ("AGENT MEMBERS") shall have no rights under this Indenture with respect to any Global Exchange Note held on their behalf by the Depositary or by the Trustee as Notes Custodian or under such Global Exchange Note, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Exchange Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of such Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global Exchange Note. (d) DEFINITIVE NOTES. Except as provided in PARAGRAPH 2.3 or 2.4, owners of beneficial interests in Global Exchange Notes will not be entitled to receive physical delivery of certificated Notes. Page 3 2.2 AUTHENTICATION. The Trustee shall authenticate and make available for delivery upon a written order of the Company signed by one officer (a) Initial Definitive Notes for original issue on the date hereof in an aggregate principal amount of $20,000,000, (b) subject to the terms of this Indenture, Exchange Notes in the form of Global Exchange Notes for issue in a Registered Exchange Offer pursuant to the Exchange and Registration Rights Agreement in a like principal amount at maturity of the Initial Notes exchanged pursuant thereto, (c) subject to the terms of this Indenture, Exchange Notes in the form of Global Exchange Notes in lieu of Initial Notes upon the sale of such Initial Notes (i) under a Shelf Registration Statement or (ii) at any time that such Initial Notes being sold are not Transfer Restricted Notes and (d) subject to the terms of this Indenture, Definitive Notes upon presentation to the Trustee of Initial Notes that are not required to bear the Restricted Notes Legend. Such order shall specify the amount of the Notes to be authenticated, the date on which the original issue of Notes is to be authenticated and whether the Notes are to be Initial Notes or Exchange Notes. The aggregate principal amount at maturity of Notes outstanding at any time may not exceed $20,000,000, except as provided in SECTIONS 2.07 and 2.08 of this Indenture. 2.3 TRANSFER AND EXCHANGE. (a) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES. When Definitive Notes are presented to the Registrar with a request: (i) to register the transfer of such Definitive Notes; or (ii) to exchange such Definitive Notes for an equal principal amount at maturity of Definitive Notes of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; PROVIDED, however, that the Definitive Notes surrendered for transfer or exchange: (1) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and (2) in the case of Transfer Restricted Notes are accompanied by the following additional information and documents, as applicable: (A) if such Definitive Notes are being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect (in the form set forth on the reverse side of the Initial Note); or Page 4 (B) if such Definitive Notes are being transferred to the Company, a certification to that effect (in the form set forth on the reverse side of the Initial Note); or (C) if such Definitive Notes are being transferred pursuant to an exemption from registration in accordance with Rule 144 under the Securities Act or in reliance upon another exemption from the registration requirements of the Securities Act, (x) a certification to that effect (in the form set forth on the reverse side of the Initial Note) and (y) if the Company, the Registrar or the Trustee so requests, an opinion of counsel or other evidence reasonably satisfactory to it as to the compliance with the restrictions set forth in the legend set forth in PARAGRAPH 2.3(D)(I). (b) RESTRICTIONS ON TRANSFER OF A DEFINITIVE NOTE FOR A BENEFICIAL INTEREST IN A GLOBAL EXCHANGE NOTE. A Definitive Note may not be exchanged for a beneficial interest in a Global Exchange Note except (i) as part of a Registered Exchange Offer, (ii) upon sale of the Definitive Note under the Shelf Registration Statement, (iii) upon sale of the Definitive Note at the time such Definitive Note is not a Transfer Restricted Note or (iv) upon presentation to the Trustee of Definitive Notes that are not Transfer Restricted Notes. Upon receipt by the Trustee of a Definitive Note, duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Registrar, together with written instructions directing the Trustee to make, or to direct the Notes Custodian to make, an adjustment on its books and records with respect to such Global Exchange Note to reflect an increase in the aggregate principal amount at maturity of the Notes represented by the Global Exchange Note, such instructions to contain information regarding the Depositary account to be credited with such increase, then the Trustee shall cancel such Definitive Note and cause, or direct the Notes Custodian to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Notes Custodian, the aggregate principal amount at maturity of Notes represented by the Global Exchange Note to be increased by the aggregate principal amount at maturity of the Definitive Note to be exchanged and shall credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Global Exchange Note equal to the principal amount at maturity of the Definitive Note so canceled. If no Global Exchange Notes are then outstanding and the Global Exchange Note has not been previously exchanged for certificated Notes pursuant to PARAGRAPH 2.4, the Company shall issue and the Trustee shall authenticate, upon written order of the Company in the form of an Officers' Certificate, a new Global Exchange Note in the appropriate principal amount at maturity. (c) TRANSFER AND EXCHANGE OF GLOBAL EXCHANGE NOTES. (i) The transfer of the Global Exchange Note or beneficial interests therein shall be effected through the Depositary, in accordance with this Indenture and the procedures of the Depositary therefor. A transferor of a beneficial interest in a Global Exchange Note shall deliver a written order given in accordance with the Depositary's procedures containing information regarding the participant account of the Depositary to be credited with a beneficial interest in such Global Exchange Note and such account shall be credited in accordance with such order with a Page 5 beneficial interest in the applicable Global Exchange Note and the account of the Person making the transfer shall be debited by an amount equal to the beneficial interest in the Global Exchange Note being transferred. (ii) Notwithstanding any other provisions of this Appendix (other than the provisions set forth in PARAGRAPH 2.4), a Global Exchange Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. (d) LEGEND. (i) Except as permitted by the following clauses (ii), (iii) or (iv), each Definitive Note (and all Notes issued in exchange therefor or in substitution thereof) shall bear a legend in substantially the following form (each defined term in the legend being defined as such for purposes of the legend only): THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF SUCH NOTE), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR Page 6 OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS AN INSTITUTIONAL ACCREDITED INVESTOR ACQUIRING THE NOTE FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT AT MATURITY OF THE NOTES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. Each Definitive Note shall bear the following additional legend: IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. (ii) Upon any sale or transfer of a Transfer Restricted Note that is a Definitive Note, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Note for a Definitive Note that does not bear the legends set forth above and rescind any restriction on the transfer of such Transfer Restricted Note if the Holder certifies in writing to the Registrar that its request for such exchange was made in reliance on Rule 144 (such certification to be in the form set forth on the reverse of the Initial Note). (iii) After a transfer of any Initial Notes during the period of the effectiveness and pursuant to a Shelf Registration Statement with respect to such Initial Notes, all requirements pertaining to the Restricted Notes Legend on such Initial Notes shall cease to apply and the requirements that any such Initial Notes be issued in global form shall become applicable. (iv) Upon the consummation of a Registered Exchange Offer with respect to the Initial Notes pursuant to which Holders of such Initial Notes are offered Exchange Notes in exchange for their Initial Notes, Exchange Notes in global form without Page 7 the Restricted Notes Legend shall be available to Holders that exchange such Initial Notes in such Registered Exchange Offer. (e) CANCELLATION OR ADJUSTMENT OF GLOBAL EXCHANGE NOTE. At such time as all beneficial interests in a Global Exchange Note have either been exchanged for Definitive Notes, transferred, redeemed, repurchased or canceled, such Global Exchange Note shall be returned by the Depositary to the Trustee for cancellation or retained and canceled by the Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Exchange Note is exchanged for Definitive Notes, transferred in exchange for an interest in another Global Exchange Note, redeemed, repurchased or canceled, the principal amount at maturity of Notes represented by such Global Exchange Note shall be reduced and an adjustment shall be made on the books and records of the Trustee (if it is then the Notes Custodian for such Global Exchange Note) with respect to such Global Exchange Note, by the Trustee or the Notes Custodian, to reflect such reduction. (f) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF Notes. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate, Definitive Notes and Global Exchange Notes at the Registrar's request. (ii) No service charge shall be made for any registration of transfer or exchange, but the Company or the Trustee may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charge payable upon exchanges pursuant to SECTIONS 2.06, 3.06, 4.09, 4.10 and 10.05 of this Indenture). (iii) Prior to the due presentation for registration of transfer of any Note, the Company, the Trustee, the Paying Agent or the Registrar may deem and treat the person in whose name a Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on and Special Interest, if any, with respect to such Note and for all other purposes whatsoever, whether or not such Note is overdue, and none of the Company, the Trustee, the Paying Agent or the Registrar shall be affected by notice to the contrary. (iv) All Notes issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Notes surrendered upon such transfer or exchange. (g) No Obligation of the Trustee. (i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Exchange Note, a member of, or a participant in the Depositary or any other Person with respect to the accuracy of the records of the Depositary or its nominee or of any participant or member thereof, with respect to any Page 8 ownership interest in the Notes or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depositary) of any notice (including any notice of redemption or repurchase) or the payment of any amount, under or with respect to such Notes. All notices and communications to be given to the Holders and all payments to be made to Holders under the Notes shall be given or made only to the registered Holders (which shall be the Depositary or its nominee in the case of a Global Exchange Note). The rights of beneficial owners in any Global Exchange Note shall be exercised only through the Depositary subject to the applicable rules and procedures of the Depositary. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depositary with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among Depositary participants, members or beneficial owners in any Global Exchange Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. 2.4 DEFINITIVE NOTES (a) A Global Exchange Note deposited with the Depositary or with the Trustee as Notes Custodian pursuant to PARAGRAPH 2.1 or issued in connection with a Registered Exchange Offer shall be transferred to the beneficial owners thereof in the form of Definitive Notes in an aggregate principal amount at maturity equal to the principal amount at maturity of such Global Exchange Note, in exchange for such Global Exchange Note, only if such transfer complies with PARAGRAPH 2.3 and (i) the Depositary notifies the Company that it is unwilling or unable to continue as a Depositary for such Global Exchange Note or if at any time the Depositary ceases to be a "clearing agency" registered under the Exchange Act, and a successor depositary is not appointed by the Company within 90 days of such notice or after the Company becomes aware of such cessation, or (ii) an Event of Default has occurred and is continuing or (iii) the Company, in its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of certificated Notes under this Indenture. (b) Any Global Exchange Note that is transferable to the beneficial owners thereof pursuant to this PARAGRAPH 2.4 shall be surrendered by the Depositary to the Trustee, to be so transferred, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Exchange Note, an equal aggregate principal amount at maturity of Definitive Notes of authorized denominations. Any portion of a Global Exchange Note transferred pursuant to this paragraph shall be executed, authenticated and delivered only in denominations of $1,000 (in principal amount at maturity) and any multiple thereof and registered in such names as the Page 9 Depositary shall direct. Any certificated Initial Note in the form of a Definitive Note delivered in exchange for an interest in the Global Exchange Note shall, except as otherwise provided by PARAGRAPH 2.3(D), bear the Restricted Notes Legend. (c) Subject to the provisions of PARAGRAPH 2.4(B), the registered Holder of a Global Exchange Note may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes. (d) In the event of the occurrence of any of the events specified in PARAGRAPH 2.4(A)(I), (II) or (III), the Company will promptly make available to the Trustee a reasonable supply of Definitive Notes in fully registered form without interest coupons. Page 10 EXHIBIT A FORM OF FACE OF INITIAL NOTE THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF SUCH NOTE), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS AN INSTITUTIONAL ACCREDITED INVESTOR ACQUIRING THE NOTE FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT AT MATURITY OF THE NOTES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. Page 1 IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. This debt instrument has been issued with original issue discount. The following information is provided pursuant to Treas. Reg. Section 1.1275-3: Issue Price: $870.00 per $1,000 of face amount Issue Date: September 20, 2000 Amount of Original Issue Discount: $$130 per $1,000 of face amount Yield to Maturity: 16.16% Page 2 No. [___________] $__________ 13.5% Senior Subordinated Note due 2010 VICAR OPERATING, INC., a Delaware corporation, promises to pay to ___________ or registered assigns, the principal amount at maturity of [ ] Dollars on September 20, 2010 (the "STATED MATURITY Date"). Interest Payment Dates: March 31 and September 30. Record Dates: March 15 and September 15. Page 3 Additional provisions of this Note are set forth on the other side of this Note. IN WITNESS WHEREOF, the parties have caused this instrument to be duly executed. VICAR OPERATING, INC. By: ------------------------------------- Name: Title: Dated: TRUSTEE'S CERTIFICATE OF AUTHENTICATION Chase Manhattan Bank and Trust Company, National Association, Trustee, certifies that this is one of the Notes referred to in the Indenture. By: ------------------------------------- Name: James Nagy Title: Assistant Vice President Page 4 FORM OF REVERSE SIDE OF INITIAL NOTE 13.5% Senior Subordinated Note due 2010 1. INTEREST (a) VICAR OPERATING, INC., a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "COMPANY"), promises to pay cash interest thereon from the date hereof, semi-annually in arrears on September 30 and March 31 of each year commencing March 31, 2001 and, if different, on the Stated Maturity Date (each, an "INTEREST PAYMENT DATE") at the rate of 13.5% per annum, until the principal hereof is paid. Such cash interest on the Notes shall accrue from the most recent date to which interest has been paid or duly provided for or, if no such cash interest has been paid or duly provided for, from September 20, 2000 until the principal hereof is due. Any principal of, or premium or installment of interest or Special Interest (as hereinafter defined) on this Note which is overdue shall bear interest at the rate equal to 2% per annum above the interest rate specified on the face of this Note from the date such amounts are due until they are paid (to the extent that the payment of such interest shall be legally enforceable), and such excess interest shall be payable on demand. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. (b) SPECIAL INTEREST. The holder of this Note is entitled to the benefits of the Exchange and Registration Rights Agreement, dated as of September 20, 2000, by and among the Company, the Guarantors and the Purchasers named therein. Capitalized terms used in this paragraph (b) but not defined herein have the meanings assigned to them in the Exchange and Registration Rights Agreement. If (i) the Shelf Registration Statement or Exchange Offer Registration Statement, as applicable, under the Exchange and Registration Rights Agreement, is not filed with the Commission on or prior to 90 days after the Trigger Date, (ii) the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, is not declared effective on or prior to 150 days after the Trigger Date, (iii) the Registered Exchange Offer is not consummated on or prior to 180 days after the Trigger Date, or (iv) the Shelf Registration Statement is filed and declared effective on or prior to 150 days after the Trigger Date but shall thereafter cease to be effective (at any time that the Company and the Guarantors are obligated to maintain the effectiveness thereof) without being succeeded within 45 days by an additional Registration Statement filed and declared effective (each such event referred to in clauses (i) through (iv), a "REGISTRATION DEFAULT"), the Company and the Guarantors will be jointly and severally obligated to pay Special Interest to each holder of Transfer Restricted Notes, during the period of one or more such Registration Defaults, in an amount equal to 0.5% per annum, which amount shall increase to 1.0% per annum after the first 120-day period following the occurrence of the first Registration Default, for the period from and including the date of occurrence of the first Registration Default until such time as no Registration Default is in effect (such amount equal to the "SPECIAL Interest") (after which such Special Interest shall cease to be payable). The Trustee shall have no responsibility with respect to the determination of the amount of any such Special Interest. Page 5 (c) RECORD DATES, ETC. Upon the issuance of an Exchange Note in exchange for this Note, any accrued and unpaid interest (including Special Interest) on this Note shall cease to be payable to the Holder hereof but such accrued and unpaid interest (including Special Interest) shall be payable on the next Interest Payment Date for such Exchange Note to the Holder thereof on the related Regular Record Date. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Agreement, be paid to the Person in whose name this Note is registered at the close of business on the Regular Record Date (the "REGULAR RECORD DATE") for such interest which shall be the fifteenth calendar day (whether or not a Business Day) of the calendar month in which such Interest Payment Date occurs. Notwithstanding the foregoing, if this Note is issued after a Regular Record Date and prior to an Interest Payment Date, the record date for such Interest Payment Date shall be the original issue date. 2. METHOD OF PAYMENT The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are registered holders of Notes at the close of business on the March 15 or September 15 next preceding the Interest Payment Date even if Notes are canceled after the record date and on or before the Interest Payment Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company shall pay principal, Special Interest, if any, and interest in money of the United States of America that at the time of payment is legal tender for payment of public and private debts. The Company will make all payments in respect of a certificated Note (including principal and interest), by mailing a check to the registered address of each Holder thereof; PROVIDED, HOWEVER, that payments on the Notes may also be made, in the case of a Holder of at least $1,000,000 aggregate principal amount at maturity of Notes, by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). 3. PAYING AGENT AND REGISTRAR The Company shall maintain an office or agency, which shall be located in the Borough of Manhattan, The City of New York, where Notes may be presented for registration of transfer or for exchange (the "REGISTRAR") and an office or agency where Notes may be presented for payment (the "PAYING AGENT"). Initially, Chase Manhattan Bank and Trust Company, National Association, a national banking association organized under the federal laws of the United States (the "TRUSTEE"), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. Page 6 4. INDENTURE The Company issued the Notes under an Indenture, dated as of September 20, 2000 (the "INDENTURE"), by and among the Company, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA"). Terms defined in the Indenture and used but not defined herein have the meanings ascribed thereto in the Indenture. The Notes are subject to all terms and provisions of the Indenture, and Holders (as defined in the Indenture) are referred to the Indenture and the TIA for a statement of such terms and provisions. The Notes are senior subordinated unsecured obligations of the Company limited to $20,000,000 aggregate principal amount at any one time outstanding (subject to SECTION 2.07 of the Indenture). This Note is one of the Initial Notes referred to in the Indenture issued in an aggregate original principal amount of $20,000,000. The Notes include the Initial Notes and any Exchange Notes issued in exchange for Initial Notes. The Initial Notes and the Exchange Notes are treated as a single class of Notes under the Indenture. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to, among other things, make certain Investments and other Restricted Payments, pay dividends and other distributions, incur Indebtedness, enter into consensual restrictions upon the payment of certain dividends and distributions by such Subsidiaries, issue or sell shares of Capital Stock of such Subsidiaries, enter into or permit certain transactions with Affiliates and make asset sales. The Indenture also imposes limitations on the ability of the Company to consolidate or merge with or into any other Person or convey, transfer or lease all or substantially all of the property of the Company. To guarantee the due and punctual payment of the principal of and interest on the Notes and all other amounts payable by the Company under the Indenture and the Notes when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Notes and the Indenture, the Guarantors have jointly and severally unconditionally guaranteed the Guaranteed Obligations on an unsecured senior subordinated basis pursuant to the terms of the Indenture. 5. OPTIONAL REDEMPTION The Notes are subject to redemption, at the election of the Company, upon not less than ten (10) nor more than sixty (60) days' notice by mail (each prepayment must relate to an aggregate principal amount of Notes of at least $5 million): (i) At any time prior to the second anniversary of the Closing Date, up to 35% of the aggregate principal amount of the Notes and the Holdings Notes may be prepaid from the proceeds of an Equity Offering of Common Stock of Holdings at a price of 110% of the principal amount thereof plus accrued interest; provided that, so long as the Purchasers and their Affiliates own a majority of the principal amount of the Notes outstanding, any such proceeds shall be applied first to the prepayment of the Holdings Notes, and if no Holdings Notes are then outstanding to the prepayment of the Notes; Page 7 provided further that, after giving effect to any such prepayment, at least 65% of the original principal amount of the Notes issued on the Closing Date remains outstanding. Each payment must relate to an aggregate principal amount of Notes of at least $5 million; (ii) at any time on or after the second anniversary of the Closing Date and prior to the third anniversary of the Closing Date, the entire aggregate principal amount of the Notes then outstanding may be prepaid concurrently with the consummation of an Equity Offering of Common Stock of Holdings or a Change of Control at a price of 110% of the principal amount plus accrued interest; provided that, so long as the Purchasers and their Affiliates own a majority of the principal amount of the Notes outstanding, any such proceeds shall be applied first to the prepayment of the Holdings Notes, and if no Holdings Notes are then outstanding to the prepayment of the Notes. (iii) prepayment of the notes will be permitted in whole or in part, at any time on or after the third anniversary of the Closing Date at the following Redemption Prices at the prices listed below (expressed as a percentage of the principal amount of the Notes being prepaid as of the Redemption Date) plus accrued interest to the date of prepayment; provided that, so long as the Purchasers and their Affiliates own a majority of the principal amount of the Notes outstanding, any such proceeds shall be applied first to the prepayment of the Holdings Notes, and if no Holdings Notes are then outstanding to the prepayment of the Notes: Redemption Date Redemption Price September 20, 2003 - September 19, 2006 106.75% September 20, 2006 - September 19, 2007 105.40% September 20, 2007 - September 19, 2008 104.05% September 20, 2008 - September 19, 2009 102.70% September 20, 2009 and thereafter 101.35% 6. SINKING FUND The Notes are not subject to any sinking fund. Page 8 7. NOTICE OF REDEMPTION Notice of redemption will be mailed by first-class mail at least 10 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at such Holder's registered address. Notes in denominations larger than $1,000 (in principal amount at maturity) may be redeemed in part but only in multiples of $1,000 (in principal amount at maturity). If money sufficient to pay the redemption price of and accrued and unpaid interest and Special Interest, if any, on all Notes (or portions thereof) to be redeemed on the Redemption Date is deposited with the Paying Agent on or before the Redemption Date and certain other conditions are satisfied, on and after such date, cash interest and Special Interest, if any, ceases to accrue on such Notes (or such portions thereof) called for redemption. 8. REPURCHASE OF NOTES AT THE OPTION OF HOLDERS UPON CHANGE OF CONTROL AND SALE OF ASSETS Upon the occurrence of a Change of Control, each Holder of Notes shall have the right, subject to certain conditions specified in the Indenture, to require the Company to repurchase all or any part of the Notes of such Holder at a purchase price in cash equal to 101% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest thereon and Special Interest, if any, in respect thereof to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due and Special Interest, if any, on the relevant Interest Payment Date) as provided in, and subject to the terms of, the Indenture. In accordance with SECTION 4.10 of the Indenture, the Company will be required to offer to purchase Notes upon the occurrence of certain sales of assets. 9. SUBORDINATION The Notes are subordinated to Senior Indebtedness, as defined in the Indenture. To the extent provided in the Indenture, Senior Indebtedness must be paid before the Notes may be paid. Each of the Company and the Guarantor agrees, and each Holder by accepting a Note agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give them effect and appoints the Trustee as attorney-in-fact for such purpose. 10. DENOMINATIONS; TRANSFER; EXCHANGE The Notes are in registered form without coupons in denominations of $1,000 (in principal amount at maturity) and multiples thereof. A Holder may transfer or exchange Initial Notes in accordance with the Indenture. Upon any transfer or exchange, the Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes required by law or permitted by the Indenture. The Company shall not be required to make and the Registrar need not register transfers or exchanges of Notes selected for redemption (except, in the case of a Note to be redeemed in part, the portion of the Note not to be redeemed) or any Notes for a period of 15 days prior to a selection of Notes to be redeemed. Page 9 11. PERSONS DEEMED OWNERS Except as provided in paragraph 2 hereof, the registered Holder of this Note shall be treated as the owner of it for all purposes. 12. UNCLAIMED MONEY If money for the payment of principal of or interest on the Notes has been deposited with the Trustee or Paying Agent and remains unclaimed for two years after such amount is due and payable, the Trustee or Paying Agent shall pay the money back to the Company at its written request unless an abandoned property law designates another Person. After any such payment, the Trustee and the Paying Agent shall have no further liability for such funds and Holders entitled to the money must look only to the recipient and not to the Trustee for payment. 13. DISCHARGE AND DEFEASANCE Subject to certain conditions, the Company at any time may terminate some of or all its obligations under the Notes and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal of and interest on the Notes to redemption or maturity, as the case may be. 14. AMENDMENT, WAIVER Subject to certain exceptions set forth in the Indenture, (a) the Indenture or the Notes may be amended without prior notice to any Holder but with the written consent of the Holders of at least a majority in principal amount at maturity of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange for the Notes) and (b) any default may be waived with the written consent of the Holders of at least a majority in principal amount at maturity of the outstanding Notes. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder of Notes, the Company, the Guarantors and the Trustee may amend the Indenture or the Notes (a) to cure any ambiguity, omission, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes (PROVIDED, HOWEVER, that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code); (c) to make any change in Article 11 or SECTION 12.05 of the Indenture that would limit or terminate the benefits available to any holder of Senior Indebtedness (or any Representative thereof) under Article 11 or SECTION 12.05 of the Indenture; (d) to add additional Guarantees with respect to the Notes; (e) to secure the Notes; (f) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power conferred on the Company in the Indenture; (g) to comply with any requirement of the Commission in connection with qualifying, or maintaining the qualification of, the Indenture under the TIA; (h) to make any change that does not adversely affect the rights of any Holder; (i) to provide for the issuance of the Exchange Notes which shall have terms substantially identical in all material respects to the Initial Notes (except that the transfer restrictions contained in the Initial Notes shall be modified or eliminated, as appropriate), and which shall be treated, Page 10 together with any outstanding Initial Notes, as a single issue of securities; or (j) to change the name or title of the Notes. 15. DEFAULTS, REMEDIES AND ACCELERATION If an Event of Default (other than an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company) occurs and is continuing, the Trustee or the Holders of (i) until a Note Registration, more than 50% in principal amount of the Notes at the time outstanding, and (ii) thereafter, 25% or more in principal amount at maturity of the outstanding Notes may declare the principal of and accrued but unpaid interest on all the Notes to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of Holdings or the Company occurs, the principal of and interest on all the Notes shall become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. Under certain circumstances, the Holders of a majority in principal amount at maturity of the Notes may rescind any such acceleration with respect to the Notes and its consequences. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any rights or powers under the Indenture at the request or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal or interest when due, no Holder may pursue any remedy with respect to the Indenture or the Notes unless (i) such Holder has previously given to the Trustee written notice stating that an Event of Default is continuing, (ii) Holders of at least 25% in principal amount at maturity of the outstanding Notes have requested the Trustee in writing to pursue the remedy, (iii) such Holder or Holders have offered to the Trustee reasonable security or indemnity against any loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after receipt of the request and the offer of security or indemnity and (v) the Holders of a majority in principal amount at maturity of the outstanding Notes have not given the Trustee a direction inconsistent with such request during such 60-day period. Subject to certain restrictions, the Holders of a majority in principal amount at maturity of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or, subject to certain exceptions in the Indenture, that the Trustee determines is unduly prejudicial to the rights of other Holders or would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. Page 11 16. TRUSTEE DEALINGS WITH THE COMPANY Subject to certain limitations imposed by the TIA, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 17. NO RECOURSE AGAINST OTHERS A director, officer, employee or stockholder, as such, of the Company or any of the Guarantors shall not have any liability for any obligations of the Company or any of the Guarantors under the Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Note, each Holder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Notes. 18. AUTHENTICATION This Note shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Note. 19. ABBREVIATIONS Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 20. GOVERNING LAW THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 21. REGISTRATION RIGHTS Pursuant to the Exchange and Registration Rights Agreement, the Company will be obligated upon the occurrence of certain events to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Note for an Exchange Note which has been registered under the Securities Act, in like original principal amount and having terms identical in all material respects to this Note, other than there shall be no provision for Special Interest. Page 12 THE COMPANY WILL FURNISH TO ANY HOLDER OF NOTES UPON WRITTEN REQUEST AND WITHOUT CHARGE TO THE HOLDER A COPY OF THE INDENTURE WHICH HAS IN IT THE TEXT OF THIS NOTE. Page 13 ASSIGNMENT FORM To assign this Note, fill in the form below: I or we assign and transfer this Note to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: ________________ Your Signature: _____________________ - ----------------------------------------------------------------- Sign exactly as your name appears on the other side of this Note. Page 14 CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER RESTRICTED NOTES This certificate relates to $_________ principal amount at maturity of Notes held in definitive form by the undersigned. The undersigned has requested the Trustee by written order to exchange or register the transfer of a Note or Notes. In connection with any transfer of any of the Notes evidenced by this certificate occurring prior to the expiration of the period referred to in Rule 144(k) under the Securities Act, the undersigned confirms that such Notes are being transferred in accordance with its terms: CHECK ONE BOX BELOW [ ] (1) to the Company; or [ ] (2) to the Registrar for registration in the name of the Holder, without transfer; or [ ] (3) pursuant to an effective registration statement under the Securities Act of 1933; or [ ] (4) inside the United States to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in reliance on Rule 144A, in each case pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or [ ] (5) outside the United States in an offshore transaction within the meaning of Regulation S under the Securities Act in compliance with Rule 904 under the Securities Act of 1933; or [ ] (6) to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933) that has furnished to the Trustee a signed letter containing certain representations and agreements; or [ ] (7) pursuant to another available exemption from registration provided by Rule 144 under the Securities Act of 1933. Page 15 Unless one of the boxes is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any Person other than the registered holder thereof; PROVIDED, HOWEVER, that if box (5), (6) or (7) is checked, the Trustee may require, prior to registering any such transfer of the Notes, such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933. -------------------------- Your Signature Signature Guarantee: Date: ___________________ __________________________ Signature must be guaranteed Signature of Signature by a participant in a Guarantee recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee - --------------------------------------------------------------- TO BE COMPLETED BY PURCHASER IF (4) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ________________ ______________________________ NOTICE: To be executed by an executive officer Page 16 OPTION OF HOLDER TO ELECT PURCHASE IF YOU WANT TO ELECT TO HAVE THIS NOTE PURCHASED BY THE COMPANY PURSUANT TO SECTION 4.09 (CHANGE OF CONTROL) OR SECTION 4.10 (APPLICATION OF EXCESS PROCEEDS FROM SALE OF ASSETS) OF THE INDENTURE, CHECK THE BOX: [ ] LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK CHANGE OF CONTROL IF YOU WANT TO ELECT TO HAVE ONLY PART OF THIS NOTE PURCHASED BY THE COMPANY PURSUANT TO SECTION 4.09 OR 4.10 OF THE INDENTURE, STATE THE PRINCIPAL AMOUNT AT MATURITY ($1,000 OR A MULTIPLE THEREOF): $ DATE: __________________ YOUR SIGNATURE: __________________ (SIGN EXACTLY AS YOUR NAME APPEARS ON THE OTHER SIDE OF THE NOTE) SIGNATURE GUARANTEE:________________________________________________________ SIGNATURE MUST BE GUARANTEED BY A PARTICIPANT IN A RECOGNIZED SIGNATURE GUARANTY MEDALLION PROGRAM OR OTHER SIGNATURE GUARANTOR ACCEPTABLE TO THE TRUSTEE Page 17 EXHIBIT B FORM OF FACE OF EXCHANGE NOTE [Global Notes Legend] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL EXCHANGE NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO DTC, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL EXCHANGE NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. This debt instrument has been issued with original issue discount. The following information is provided pursuant to Treas. Reg. Section 1.1275-3: Issue Price: $870.00 Issue Date: September 20, 2000 Amount of Original Issue Discount: $130 per $1,000 of face amount Yield to Maturity: 16.16% Page 18 No. $__________ 13.5% Senior Subordinated Note due 2010 [CUSIP No. ______] VICAR OPERATING, INC., a Delaware corporation, promises to pay to ________________, or registered assigns, the principal amount at maturity [of ] Dollars on September 20, 2010 (the "STATED MATURITY DATE"). Interest Payment Dates: March 31 and September 30. Record Dates: March 15 and September 15. Page 19 Additional provisions of this Note are set forth on the other side of this Note. IN WITNESS WHEREOF, the parties have caused this instrument to be duly executed. VICAR OPERATING, INC. By: ------------------------------------- Name: Title: Dated: TRUSTEE'S CERTIFICATE OF AUTHENTICATION Chase Manhattan Bank and Trust Company, National Association, Trustee, certifies that this is one of the Notes referred to in the Indenture. By: ------------------------------------- Authorized Signatory */ If the Note is to be issued in global form, add the Global Notes Legend and the attachment from Exhibit A captioned "TO BE ATTACHED TO GLOBAL EXCHANGE NOTES - - SCHEDULE OF INCREASES OR DECREASES IN GLOBAL EXCHANGE NOTE". Page 20 FORM OF REVERSE SIDE OF EXCHANGE NOTE 13.5% Senior Subordinated Note due 2010 1. INTEREST VICAR OPERATING, INC., a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay cash interest thereon from the date hereof, semi-annually in arrears on September 30 and March 31 of each year commencing March 31, 2001 and, if different, on the Stated Maturity Date (each, an "Interest Payment Date") at the rate of 13.5% per annum, until the principal hereof is paid. Such cash interest on the Notes shall accrue from the most recent date to which interest has been paid or duly provided for or, if no such cash interest has been paid or duly provided for, from September 20, 2000 until the principal hereof is due. Any principal of, or premium or installment of interest on this Note which is overdue shall bear interest at the rate equal to 2% per annum above the interest rate specified on the face of this Note from the date such amounts are due until they are paid (to the extent that the payment of such interest shall be legally enforceable), and such excess interest shall be payable on demand. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Agreement, be paid to the Person in whose name this Note is registered at the close of business on the Regular Record Date. "REGULAR RECORD DATE" for such interest shall be the fifteenth calendar day (whether or not a Business Day) immediately preceding such Interest Payment Date. Notwithstanding the foregoing, if this Note is issued after a Regular Record Date and prior to an Interest Payment Date, the record date for such Interest Payment Date shall be the original issue date. 2. METHOD OF PAYMENT The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are registered holders of Notes at the close of business on the March 15 or September 15 next preceding the Interest Payment Date even if Notes are canceled after the record date and on or before the Interest Payment Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States of America that at the time of payment is legal tender for payment of public and private debts. The Company will make all payments in respect of a certificated Note (including principal and interest), by mailing a check to the registered address of each Holder thereof; PROVIDED, HOWEVER, that payments on the Notes may also be made, in the case of a Holder of at least $1,000,000 aggregate principal amount at maturity of Notes, by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). Page 21 3. PAYING AGENT AND REGISTRAR The Company shall maintain an office or agency, which shall be located in the Borough of Manhattan, The City of New York, where Notes may be presented for registration of transfer or for exchange (the "REGISTRAR") and an office or agency where Notes may be presented for payment (the "PAYING AGENT"). Initially, Chase Manhattan Bank and Trust Company, National Association, a national banking association organized under the federal laws of the United States (the "TRUSTEE"), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. INDENTURE The Company issued the Notes under an Indenture, dated as of September 20, 2000 (the "INDENTURE"), by and among the Company, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. sections 77aaa-77bbbb) as in effect on the date Of the Indenture (the "TIA"). Terms defined in the Indenture and used but not defined herein have the meanings ascribed thereto in the Indenture. The Notes are subject to all terms and provisions of the Indenture, and Holders (as defined in the Indenture) are referred to the Indenture and the TIA for a statement of such terms and provisions. The Notes are senior subordinated unsecured obligations of the Company limited to $20,000,000 aggregate principal amount at any one time outstanding (subject to SECTION 2.07 of the Indenture). This Note is one of the Exchange Notes referred to in the Indenture issued in an aggregate original principal amount of $20,000,000. The Notes include the Initial Notes and any Exchange Notes issued in exchange for Initial Notes. The Initial Notes and the Exchange Notes are treated as a single class of Notes under the Indenture. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to, among other things, make certain Investments and other Restricted Payments, pay dividends and other distributions, incur Indebtedness, enter into consensual restrictions upon the payment of certain dividends and distributions by such Subsidiaries, issue or sell shares of Capital Stock of such Subsidiaries, enter into or permit certain transactions with Affiliates and make asset sales. The Indenture also imposes limitations on the ability of the Company to consolidate or merge with or into any other Person or convey, transfer or lease all or substantially all of the property of the Company. To guarantee the due and punctual payment of the principal of and interest on the Notes and all other amounts payable by the Company under the Indenture and the Notes when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Notes and the Indenture, the Guarantors have jointly and severally unconditionally guaranteed the Guaranteed Obligations on an unsecured senior subordinated basis pursuant to the terms of the Indenture. Page 22 5. OPTIONAL REDEMPTION The Notes are subject to redemption, at the election of the Company, upon not less than ten (10) nor more than sixty (60) days' notice by mail (each prepayment must relate to an aggregate principal amount of Notes of at least $5 million): (i) At any time prior to the second anniversary of the Closing Date, up to 35% of the aggregate principal amount of the Notes and the Holdings Notes may be prepaid from the proceeds of an Equity Offering of Common Stock of Holdings at a price of 110% of the principal amount thereof plus accrued interest; provided that, so long as the Purchasers and their Affiliates own a majority of the principal amount of the Notes outstanding, any such proceeds shall be applied first to the prepayment of the Holdings Notes, and if no Holdings Notes are then outstanding to the prepayment of the Notes; provided further that, after giving effect to any such prepayment, at least 65% of the original principal amount of the Notes issued on the Closing Date remains outstanding. Each payment must relate to an aggregate principal amount of Notes of at least $5 million; (ii) at any time on or after the second anniversary of the Closing Date and prior to the third anniversary of the Closing Date, the entire aggregate principal amount of the Notes then outstanding may be prepaid concurrently with the consummation of an Equity Offering of Common Stock of Holdings or a Change of Control at a price of 110% of the principal amount plus accrued interest; provided that, so long as the Purchasers and their Affiliates own a majority of the principal amount of the Notes outstanding, any such proceeds shall be applied first to the prepayment of the Holdings Notes, and if no Holdings Notes are then outstanding to the prepayment of the Notes (iii) prepayment of the notes will be permitted in whole or in part, at any time on or after the third anniversary of the Closing Date at the following Redemption Prices at the prices listed below (expressed as a percentage of the principal amount of the Notes being prepaid as of the Redemption Date) plus accrued interest to the date of prepayment; provided that, so long as the Purchasers and their Affiliates own a majority of the principal amount of the Notes outstanding, any such proceeds shall be applied first to the prepayment of the Holdings Notes, and if no Holdings Notes are then outstanding to the prepayment of the Notes: Redemption Date Redemption Price September 20, 2003 - September 19, 2006 106.75% September 20, 2006 - September 19, 2007 105.40% September 20, 2007 - September 19, 2008 104.05% September 20, 2008 - September 19, 2009 102.70% September 20, 2009 and thereafter 101.35% Page 23 6. SINKING FUND The Notes are not subject to any sinking fund. 7. NOTICE OF REDEMPTION Notice of redemption will be mailed by first-class mail at least 10 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at such Holder's registered address. Notes in denominations larger than $1,000 (in principal amount at maturity) may be redeemed in part but only in multiples of $1,000 (in principal amount at maturity). If money sufficient to pay the redemption price of and accrued and unpaid interest on all Notes (or portions thereof) to be redeemed on the Redemption Date is deposited with the Paying Agent on or before the Redemption Date and certain other conditions are satisfied, on and after such date, cash interest ceases to accrue on such Notes (or such portions thereof) called for redemption. 8. REPURCHASE OF NOTES AT THE OPTION OF HOLDERS UPON CHANGE OF CONTROL AND SALE OF ASSETS Upon the occurrence of a Change of Control, each Holder of Notes shall have the right, subject to certain conditions specified in the Indenture, to require the Company to repurchase all or any part of the Notes of such Holder at a purchase price in cash equal to 101% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest thereon and Special Interest, if any, in respect thereof to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due and Special Interest, if any, on the relevant Interest Payment Date) as provided in, and subject to the terms of, the Indenture. In accordance with SECTION 4.10 of the Indenture, the Company will be required to offer to purchase Notes upon the occurrence of certain sales of assets. 9. SUBORDINATION The Notes are subordinated to Senior Indebtedness, as defined in the Indenture. To the extent provided in the Indenture, Senior Indebtedness must be paid before the Notes may be paid. Each of the Company and the Guarantor agrees, and each Holder by accepting a Note agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give them effect and appoints the Trustee as attorney-in-fact for such purpose. 10. DENOMINATIONS; TRANSFER; EXCHANGE The Notes are in registered form without coupons in denominations of $1,000 (in principal amount at maturity) and multiples thereof. A Holder may transfer or exchange Initial Notes in accordance with the Indenture. Upon any transfer or exchange, the Registrar and the Page 24 Trustee may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes required by law or permitted by the Indenture. The Company shall not be required to make and the Registrar need not register transfers or exchanges of Notes selected for redemption (except, in the case of a Note to be redeemed in part, the portion of the Note not to be redeemed) or any Notes for a period of 15 days prior to a selection of Notes to be redeemed. 11. PERSONS DEEMED OWNERS Except as provided in paragraph 2 hereof, the registered Holder of this Note shall be treated as the owner of it for all purposes. 12. UNCLAIMED MONEY If money for the payment of principal of or interest on the Notes has been deposited with the Trustee or Paying Agent and remains unclaimed for two years after such amount is due and payable, the Trustee or Paying Agent shall pay the money back to the Company at its written request unless an abandoned property law designates another Person. After any such payment, the Trustee and the Paying Agent shall have no further liability for such funds and Holders entitled to the money must look only to the recipient and not to the Trustee for payment. 13. DISCHARGE AND DEFEASANCE Subject to certain conditions, the Company at any time may terminate some of or all its obligations under the Notes and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal of and interest on the Notes to redemption or maturity, as the case may be. 14. AMENDMENT, WAIVER Subject to certain exceptions set forth in the Indenture, (a) the Indenture or the Notes may be amended without prior notice to any Holder but with the written consent of the Holders of at least a majority in principal amount at maturity of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange for the Notes) and (b) any default may be waived with the written consent of the Holders of at least a majority in principal amount at maturity of the outstanding Notes. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder of Notes, the Company, the Guarantors and the Trustee may amend the Indenture or the Notes (a) to cure any ambiguity, omission, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes (PROVIDED, HOWEVER, that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code); (c) to make any change in Article 11 or SECTION 12.05 of the Indenture that would limit or terminate the benefits available to any holder of Senior Indebtedness (or any Representative thereof) under Article 11 or SECTION 12.05 of the Indenture; Page 25 (d) to add additional Guarantees with respect to the Notes; (e) to secure the Notes; (f) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power conferred on the Company in the Indenture; (g) to comply with any requirement of the Commission in connection with qualifying, or maintaining the qualification of, the Indenture under the TIA; (h) to make any change that does not adversely affect the rights of any Holder; (i) to provide for the issuance of the Exchange Notes which shall have terms substantially identical in all material respects to the Initial Notes (except that the transfer restrictions contained in the Initial Notes shall be modified or eliminated, as appropriate), and which shall be treated, together with any outstanding Initial Notes, as a single issue of securities; or (j) to change the name or title of the Notes. 15. DEFAULTS, REMEDIES AND ACCELERATION If an Event of Default (other than an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company) occurs and is continuing, the Trustee or the Holders of (i) until a Note Registration, more than 50% in principal amount of the Notes at the time outstanding, and (ii) thereafter, 25% or more in principal amount at maturity of the outstanding Notes may declare the principal of and accrued but unpaid interest on all the Notes to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of Holdings or the Company occurs, the principal of and interest on all the Notes shall become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. Under certain circumstances, the Holders of a majority in principal amount at maturity of the Notes may rescind any such acceleration with respect to the Notes and its consequences. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any rights or powers under the Indenture at the request or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal or interest when due, no Holder may pursue any remedy with respect to the Indenture or the Notes unless (i) such Holder has previously given to the Trustee written notice stating that an Event of Default is continuing, (ii) Holders of at least 25% in principal amount at maturity of the outstanding Notes have requested the Trustee in writing to pursue the remedy, (iii) such Holder or Holders have offered to the Trustee reasonable security or indemnity against any loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after receipt of the request and the offer of security or indemnity and (v) the Holders of a majority in principal amount at maturity of the outstanding Notes have not given the Trustee a direction inconsistent with such request during such 60-day period. Subject to certain restrictions, the Holders of a majority in principal amount at maturity of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or, subject to certain exceptions in the Indenture, that the Trustee determines is unduly prejudicial to the rights of other Holders or Page 26 would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. 16. TRUSTEE DEALINGS WITH THE COMPANY Subject to certain limitations imposed by the TIA, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 17. NO RECOURSE AGAINST OTHERS A director, officer, employee or stockholder, as such, of the Company or any of the Guarantors shall not have any liability for any obligations of the Company or any of the Guarantors under the Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Note, each Holder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Notes. 18. AUTHENTICATION This Note shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Note. 19. ABBREVIATIONS Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 20. GOVERNING LAW THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 21. CUSIP NUMBERS The Company has caused CUSIP numbers to be printed on the Notes and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as Page 27 contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. THE COMPANY WILL FURNISH TO ANY HOLDER OF NOTES UPON WRITTEN REQUEST AND WITHOUT CHARGE TO THE HOLDER A COPY OF THE INDENTURE WHICH HAS IN IT THE TEXT OF THIS NOTE. Page 28 ASSIGNMENT FORM To assign this Note, fill in the form below: I or we assign and transfer this Note to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. - ------------------------------------------------------------ Date: ________________ Your Signature: _____________________ - ----------------------------------------------------------------- Sign exactly as your name appears on the other side of this Note. Page 29 OPTION OF HOLDER TO ELECT PURCHASE IF YOU WANT TO ELECT TO HAVE THIS NOTE PURCHASED BY THE COMPANY PURSUANT TO SECTION 4.09 (CHANGE OF CONTROL) OR SECTION 4.10 (APPLICATION OF EXCESS PROCEEDS FROM SALE OF ASSETS) OF THE INDENTURE, CHECK THE BOX: [ ] LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK CHANGE OF CONTROL IF YOU WANT TO ELECT TO HAVE ONLY PART OF THIS NOTE PURCHASED BY THE COMPANY PURSUANT TO SECTION 4.09 OR 4.10 OF THE INDENTURE, STATE THE PRINCIPAL AMOUNT AT MATURITY ($1,000 OR A MULTIPLE THEREOF): $ DATE: __________________ YOUR SIGNATURE: __________________ (SIGN EXACTLY AS YOUR NAME APPEARS ON THE OTHER SIDE OF THE NOTE) SIGNATURE GUARANTEE:________________________________________________________ SIGNATURE MUST BE GUARANTEED BY A PARTICIPANT IN A RECOGNIZED SIGNATURE GUARANTY MEDALLION PROGRAM OR OTHER SIGNATURE GUARANTOR ACCEPTABLE TO THE TRUSTEE Page 30 EXHIBIT C FORM OF SUPPLEMENTAL GUARANTEE SUPPLEMENTAL GUARANTEE (this "SUPPLEMENTAL GUARANTEE"), dated as of _______________, between ____________________ (the "GUARANTOR"), a direct or indirect subsidiary of Vicar Recap, Inc. (or its successor), a Delaware corporation (the "COMPANY"), and ______________, as trustee (the "TRUSTEE") W I T N E S S E T H WHEREAS, the Company and the Subsidiaries listed on the signature pages thereof have each heretofore executed and delivered to the Trustee an Indenture (the "INDENTURE"), dated as of September ___, 2000, providing for the issuance by the Company of an aggregate principal amount of $20,000,000 of 13.50% Senior Subordinated Notes Due 2010 (the "NOTES"); and WHEREAS, SECTION 12.02 of the Indenture provides that under certain circumstances the Company is required to cause the Guarantor to execute and deliver to the Trustee for the benefit of the Holders a supplemental agreement pursuant to which the Guarantor shall unconditionally guarantee all of the Company's obligations under the Notes pursuant to a Guarantee on the terms and conditions set forth herein; NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guarantor covenants and agrees for the equal and ratable benefit of the Holders of the Notes as follows: 1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. AGREEMENT TO GUARANTEE; EXCHANGE AND REGISTRATION RIGHTS AGREEMENT. The Guarantor hereby agrees, jointly and severally with all other Guarantors, to unconditionally guarantee the Company's obligations under the Notes on the terms and subject to the conditions set forth in ARTICLE 12 of the Indenture and to be bound by all other applicable provisions of the Indenture. The Guarantor further agrees to become a party to the Exchange and Registration Rights Agreement and to be bound by all provisions thereof. 3. NO RECOURSE AGAINST OTHERS. No director, officer, employee, incorporator or stockholder of the Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, any Guarantee, the Indenture or this Supplemental Guarantee or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Page C-1 Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Securities and Exchange Commission that such a waiver is against public policy. 4. EFFECTIVENESS. This Supplemental Guarantee shall be effective upon execution by the parties hereto. 5. RECITALS. The recitals contained herein shall be taken as the statements of the Company and the Guarantors assume no responsibility for their correctness. 6. NEW YORK LAW TO GOVERN. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL AGREEMENT. 7. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Guarantee. Each signed copy shall be an original, but all of them together represent the same agreement. 8. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. [Guarantor] By: _________________________ Name: Title: Page C-2 EXHIBIT D FORM OF NOTATION OF GUARANTEE The undersigned have guaranteed this Note on a subordinated basis as provided in the Indenture. Page 3 VICAR OPERATING, INC. Senior Subordinated Notes due 2010 INDENTURE Dated as of September 20, 2000 Chase Manhattan Bank and Trust Company, National Association, Trustee TABLE OF CONTENTS PAGE ARTICLE 1. DEFINITIONS AND ACCOUNTING TERMS.................................1 SECTION 1.01. DEFINITIONS..................................................1 SECTION 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT...........22 SECTION 1.03. RULES OF CONSTRUCTION.......................................22 ARTICLE 2. THE NOTES.......................................................23 SECTION 2.01. FORM AND DATING.............................................23 SECTION 2.02. EXECUTION AND AUTHENTICATION................................23 SECTION 2.03. REGISTRAR AND PAYING AGENT..................................24 SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.........................24 SECTION 2.05. HOLDER LISTS................................................25 SECTION 2.06. TRANSFER AND EXCHANGE.......................................25 SECTION 2.07. REPLACEMENT NOTES...........................................26 SECTION 2.08. OUTSTANDING NOTES...........................................26 SECTION 2.09. TEMPORARY NOTES.............................................27 SECTION 2.10. CANCELLATION................................................27 SECTION 2.11. DEFAULTED INTEREST..........................................27 SECTION 2.12. CUSIP NUMBERS...............................................27 ARTICLE 3. REDEMPTION......................................................27 SECTION 3.01. NOTICES TO TRUSTEE..........................................27 SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED...........................28 SECTION 3.03. NOTICE OF REDEMPTION........................................28 SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION..............................29 SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.................................29 SECTION 3.06. NOTES REDEEMED IN PART......................................29 ARTICLE 4. AFFIRMATIVE COVENANTS...........................................30 SECTION 4.01. PAYMENT OF NOTES............................................30 SECTION 4.02. COMMISSION REPORTS..........................................30 SECTION 4.03. PRESERVATION OF CORPORATE EXISTENCE.........................30 SECTION 4.04. MAINTENANCE OF PROPERTIES...................................31 SECTION 4.05. TAXES.......................................................31 SECTION 4.06. COMPLIANCE CERTIFICATE......................................31 SECTION 4.07. COMPLIANCE WITH LAW.........................................32 SECTION 4.08. INSURANCE...................................................32 SECTION 4.09. OFFER TO REPURCHASE UPON CHANGE OF CONTROL..................32 SECTION 4.10. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.........33 SECTION 4.11. POST-CLOSING GUARANTEES.....................................34 SECTION 4.12. FURTHER ASSURANCES..........................................34 ARTICLE 5. NEGATIVE COVENANTS OF THE COMPANY...............................35 SECTION 5.01. STAY, EXTENSION AND USURY LAWS..............................35 SECTION 5.02. RESTRICTED PAYMENTS.........................................35 SECTION 5.03. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES..............................................39 SECTION 5.04. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED CAPITAL STOCK OR PREFERRED STOCK..........................40 SECTION 5.05. ASSET DISPOSITIONS..........................................44 SECTION 5.06. TRANSACTIONS WITH AFFILIATES................................45 SECTION 5.07. LIMITATION ON LIENS.........................................47 SECTION 5.08. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF SUBSIDIARIES..............................................47 SECTION 5.09. SALES AND LEASEBACK TRANSACTIONS............................47 SECTION 5.10. PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED DEBT.......48 SECTION 5.11. CONDUCT OF BUSINESS.........................................48 ARTICLE 6. MERGER, CONSOLIDATION, SALE OF ASSETS, ETC......................48 SECTION 6.01. WHEN COMPANY CAN MERGE, CONSOLIDATE, SELL ASSETS, ETC.......48 ARTICLE 7. EVENTS OF DEFAULT; REMEDIES.....................................49 SECTION 7.01. EVENTS OF DEFAULT...........................................49 SECTION 7.02. ACCELERATION................................................51 SECTION 7.03. OTHER REMEDIES..............................................52 SECTION 7.04. WAIVER OF PAST DEFAULTS.....................................52 SECTION 7.05. CONTROL BY MAJORITY.........................................52 SECTION 7.06. LIMITATION ON SUITS.........................................52 SECTION 7.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT........................53 SECTION 7.08. COLLECTION SUIT BY TRUSTEE..................................53 SECTION 7.09. TRUSTEE MAY FILE PROOFS OF CLAIM............................53 SECTION 7.10. PRIORITIES..................................................53 SECTION 7.11. UNDERTAKING FOR COSTS.......................................54 ARTICLE 8. TRUSTEE.........................................................54 SECTION 8.01. DUTIES OF TRUSTEE...........................................54 SECTION 8.02. RIGHTS OF TRUSTEE...........................................55 SECTION 8.03. INDIVIDUAL RIGHTS OF TRUSTEE................................56 SECTION 8.04. TRUSTEE'S DISCLAIMER........................................56 SECTION 8.05. NOTICE OF DEFAULTS..........................................56 SECTION 8.06. REPORTS BY TRUSTEE TO HOLDERS...............................57 SECTION 8.07. COMPENSATION AND INDEMNITY..................................57 SECTION 8.08. REPLACEMENT OF TRUSTEE......................................58 SECTION 8.09. SUCCESSOR TRUSTEE BY MERGER.................................59 SECTION 8.10. ELIGIBILITY; DISQUALIFICATION...............................59 SECTION 8.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.......59 ARTICLE 9. DISCHARGE OF INDENTURE; DEFEASANCE..............................60 SECTION 9.01. DISCHARGE OF LIABILITY ON NOTES; DEFEASANCE.................60 SECTION 9.02. CONDITIONS TO DEFEASANCE....................................61 SECTION 9.03. APPLICATION OF TRUST MONEY..................................62 SECTION 9.04. REPAYMENT TO COMPANY........................................62 SECTION 9.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS........................62 SECTION 9.06. REINSTATEMENT...............................................62 ARTICLE 10. AMENDMENTS.....................................................63 SECTION 10.01. WITHOUT CONSENT OF HOLDERS.................................63 SECTION 10.02. WITH CONSENT OF HOLDERS....................................64 SECTION 10.03. COMPLIANCE WITH TRUST INDENTURE ACT........................65 SECTION 10.04. REVOCATION AND EFFECT OF CONSENTS AND WAIVERS..............65 SECTION 10.05. NOTATION ON OR EXCHANGE OF NOTES...........................65 SECTION 10.06. TRUSTEE TO SIGN AMENDMENTS.................................66 ARTICLE 11. SUBORDINATION OF NOTES.........................................66 SECTION 11.01. NOTES SUBORDINATE TO SENIOR INDEBTEDNESS...................66 SECTION 11.02. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.............66 SECTION 11.03. NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT.............68 SECTION 11.04. PAYMENT PERMITTED IF NO DEFAULT............................69 SECTION 11.05. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS....69 SECTION 11.06. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS................69 SECTION 11.07. NO WAIVER OF SUBORDINATION PROVISIONS......................70 SECTION 11.08. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT.........................................70 SECTION 11.09. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON SUBORDINATION PROVISIONS..................................71 SECTION 11.10. TRUST MONIES NOT SUBORDINATED..............................71 SECTION 11.11. TRUSTEE TO EFFECTUATE SUBORDINATION........................71 SECTION 11.12. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS...71 SECTION 11.13. THIRD PARTY BENEFICIARY; NO AMENDMENT......................71 SECTION 11.14. TRUSTEE'S COMPENSATION NOT PREJUDICED......................71 SECTION 12. GUARANTEES.....................................................71 SECTION 12.01. GUARANTEES.................................................71 SECTION 12.02. EXECUTION AND DELIVERY OF THIS INDENTURE AND SUPPLEMENTAL GUARANTEES................................................72 SECTION 12.03. GUARANTORS MAY CONSOLIDATE, ETC. ON CERTAIN TERMS..........73 SECTION 12.04. RELEASES OF GUARANTEES.....................................74 SECTION 12.05. SUBORDINATION OF GUARANTEES................................74 SECTION 12.06. LIMITATION ON GUARANTOR LIABILITY..........................74 SECTION 12.07. ENDORSEMENT OF GUARANTEES..................................75 ARTICLE 13. MISCELLANEOUS..................................................75 SECTION 13.01. TRUST INDENTURE ACT CONTROLS...............................75 SECTION 13.02. NOTICES....................................................75 SECTION 13.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS................76 SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.........76 SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION..............77 SECTION 13.06. WHEN NOTES DISREGARDED.....................................77 SECTION 13.07. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR...............77 SECTION 13.08. LEGAL HOLIDAYS.............................................77 SECTION 13.09. GOVERNING LAW..............................................77 SECTION 13.10. NO RECOURSE AGAINST OTHERS.................................78 SECTION 13.11. SUCCESSORS.................................................78 SECTION 13.12. MULTIPLE ORIGINALS; COUNTERPARTS...........................78 SECTION 13.13. TABLE OF CONTENTS; HEADINGS................................78 SECTION 13.14. INCORPORATION..............................................78 SECTION 13.15. INTENT TO LIMIT INTEREST TO MAXIMUM........................78 Appendix A. Provisions Relating to the Initial Notes and the Exchange Notes EXHIBITS: Exhibit A - Form of Initial Note Exhibit B - Form of Exchange Note Exhibit C - Form of Supplemental Guarantee Exhibit D - Form of Notation of Guarantee SCHEDULES: Schedule 5.06 - Affiliate Transactions EX-4 8 ex-4_5.txt EXHIBIT 4.5 - CREDIT AND GUARANTY AGREEMENT EXHIBIT 4.5 CREDIT AND GUARANTY AGREEMENT DATED AS OF SEPTEMBER 20, 2000 AMONG VICAR OPERATING, INC., VETERINARY CENTERS OF AMERICA, INC., CERTAIN SUBSIDIARIES OF COMPANY, AS GUARANTORS, VARIOUS LENDERS, GOLDMAN SACHS CREDIT PARTNERS L.P., AS SOLE LEAD ARRANGER AND SOLE SYNDICATION AGENT, AND WELLS FARGO BANK, N.A., AS ADMINISTRATIVE AGENT ------------------------------------------------------------------ $300,000,000 SENIOR SECURED CREDIT FACILITIES ------------------------------------------------------------------
TABLE OF CONTENTS Page SECTION 1. DEFINITIONS AND INTERPRETATION....................................8 1.1. DEFINITIONS.......................................................8 1.2. ACCOUNTING TERMS..................................................40 1.3. INTERPRETATION, ETC...............................................40 SECTION 2. LOANS.............................................................41 2.1. TERM LOANS........................................................41 2.2. REVOLVING LOANS...................................................42 2.3. SWING LINE LOANS..................................................43 2.4. PRO RATA SHARES; AVAILABILITY OF FUNDS............................46 2.5. USE OF PROCEEDS...................................................46 2.6. EVIDENCE OF DEBT; REGISTER; LENDERS' BOOKS AND RECORDS; NOTES.....47 2.7. INTEREST ON LOANS.................................................47 2.8. CONVERSION/CONTINUATION...........................................49 2.9. DEFAULT INTEREST..................................................49 2.10. FEES..............................................................50 2.11. SCHEDULED PAYMENTS................................................50 2.12. VOLUNTARY PREPAYMENTS/COMMITMENT REDUCTIONS.......................52 2.13. MANDATORY PREPAYMENTS/COMMITMENT REDUCTIONS.......................53 2.14. APPLICATION OF PREPAYMENTS/REDUCTIONS.............................55 2.15. GENERAL PROVISIONS REGARDING PAYMENTS.............................57 2.16. RATABLE SHARING...................................................58 2.17. MAKING OR MAINTAINING EURODOLLAR RATE LOANS.......................58 2.18. INCREASED COSTS; CAPITAL ADEQUACY.................................60 2.19. TAXES; WITHHOLDING, ETC...........................................61 2.20. OBLIGATION TO MITIGATE............................................63 2.21. DEFAULTING LENDERS................................................64 2.22. REMOVAL OR REPLACEMENT OF A LENDER................................65 SECTION 3. CONDITIONS PRECEDENT..............................................66 3.1. CLOSING DATE......................................................66 3.2. CONDITIONS TO EACH CREDIT EXTENSION...............................71 SECTION 4. REPRESENTATIONS AND WARRANTIES....................................72 4.1. ORGANIZATION; REQUISITE POWER AND AUTHORITY; QUALIFICATION........72 4.2. CAPITAL STOCK AND OWNERSHIP.......................................73 4.3. DUE AUTHORIZATION.................................................73 4.4. NO CONFLICT.......................................................73 4.5. GOVERNMENTAL CONSENTS.............................................74 4.6. BINDING OBLIGATION................................................74 4.7. HISTORICAL FINANCIAL STATEMENTS...................................74 4.8. PROJECTIONS.......................................................74 4.9. NO MATERIAL ADVERSE CHANGE........................................74 4.10. NO RESTRICTED JUNIOR PAYMENTS.....................................75 4.11. ADVERSE PROCEEDINGS, ETC..........................................75 4.12. PAYMENT OF TAXES..................................................75 4.13. PROPERTIES........................................................75 4.14. ENVIRONMENTAL MATTERS.............................................76 4.15. NO DEFAULTS.......................................................76 4.16. GOVERNMENTAL REGULATION...........................................76 4.17. MARGIN STOCK......................................................77 4.18. EMPLOYEE MATTERS..................................................77 4.19. EMPLOYEE BENEFIT PLANS............................................77 4.20. CERTAIN FEES......................................................78 4.21. SOLVENCY..........................................................78 4.22. RELATED AGREEMENTS................................................78 4.23. SUBORDINATION OF PERMITTED SELLER NOTES AND SENIOR SUBORDINATED NOTE DOCUMENTS.....................................79 4.24. COMPLIANCE WITH STATUTES, ETC.....................................79 4.25. DISCLOSURE........................................................79 SECTION 5. AFFIRMATIVE COVENANTS.............................................80 5.1. FINANCIAL STATEMENTS AND OTHER REPORTS............................80 5.2. EXISTENCE.........................................................83 5.3. PAYMENT OF TAXES AND CLAIMS.......................................84 5.4. MAINTENANCE OF PROPERTIES.........................................84 5.5. INSURANCE.........................................................84 5.6. INSPECTIONS.......................................................85 5.7. LENDERS MEETINGS..................................................85 5.8. COMPLIANCE WITH LAWS..............................................85 5.9. ENVIRONMENTAL.....................................................85 5.10. SUBSIDIARIES......................................................86 5.11. ADDITIONAL MATERIAL REAL ESTATE ASSETS............................87 5.12. INTEREST RATE PROTECTION..........................................87 5.13. FURTHER ASSURANCES................................................88 SECTION 6. NEGATIVE COVENANTS................................................88 6.1. INDEBTEDNESS......................................................88 6.2. LIENS.............................................................91 6.3. EQUITABLE LIEN....................................................92 6.4. NO FURTHER NEGATIVE PLEDGES.......................................92 6.5. RESTRICTED JUNIOR PAYMENTS........................................93 6.6. RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS..........................95 6.7. INVESTMENTS.......................................................96 6.8. FINANCIAL COVENANTS...............................................97 6.9. FUNDAMENTAL CHANGES; DISPOSITION OF ASSETS; ACQUISITIONS..........101 6.10. DISPOSAL OF SUBSIDIARY INTERESTS..................................102 6.11. SALES AND LEASE-BACKS.............................................102 6.12. TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES.....................102 6.13. CONDUCT OF BUSINESS...............................................103 6.14. PERMITTED ACTIVITIES OF HOLDINGS..................................103 6.15. AMENDMENTS OR WAIVERS OF CERTAIN RELATED AGREEMENTS...............104 6.16. AMENDMENTS OR WAIVERS WITH RESPECT TO SUBORDINATED INDEBTEDNESS...104 6.17. DESIGNATION OF "SENIOR INDEBTEDNESS"..............................104 6.18. FISCAL YEAR.......................................................104 SECTION 7. GUARANTY..........................................................104 7.1. GUARANTY OF THE OBLIGATIONS.......................................104 7.2. CONTRIBUTION BY GUARANTORS........................................105 7.3. PAYMENT BY GUARANTORS.............................................105 7.4. LIABILITY OF GUARANTORS ABSOLUTE..................................106 7.5. WAIVERS BY GUARANTORS.............................................108 7.6. GUARANTORS' RIGHTS OF SUBROGATION, CONTRIBUTION, ETC..............108 7.7. SUBORDINATION OF OTHER OBLIGATIONS................................109 7.8. CONTINUING GUARANTY...............................................109 7.9. AUTHORITY OF GUARANTORS OR COMPANY................................109 7.10. FINANCIAL CONDITION OF COMPANY....................................110 7.11. BANKRUPTCY, ETC...................................................110 7.12. DISCHARGE OF GUARANTY UPON SALE OF GUARANTOR......................111 SECTION 8. EVENTS OF DEFAULT.................................................111 8.1. EVENTS OF DEFAULT.................................................111 SECTION 9. AGENTS............................................................114 9.1. APPOINTMENT OF AGENTS.............................................114 9.2. POWERS AND DUTIES.................................................114 9.3. GENERAL IMMUNITY..................................................115 9.4. AGENTS ENTITLED TO ACT AS LENDER..................................115 9.5. LENDERS' REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENT...........116 9.6. RIGHT TO INDEMNITY................................................116 9.7. SUCCESSOR ADMINISTRATIVE AGENT AND SWING LINE LENDER..............117 9.8. COLLATERAL DOCUMENTS AND GUARANTY.................................117 SECTION 10. MISCELLANEOUS....................................................118 10.1. NOTICES...........................................................118 10.2. EXPENSES..........................................................118 10.3. INDEMNITY.........................................................119 10.4. SET-OFF...........................................................119 10.5. AMENDMENTS AND WAIVERS............................................120 10.6. SUCCESSORS AND ASSIGNS; PARTICIPATIONS............................122 10.7. INDEPENDENCE OF COVENANTS.........................................124 10.8. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS............124 10.9. NO WAIVER; REMEDIES CUMULATIVE....................................125 10.10. MARSHALLING; PAYMENTS SET ASIDE...................................125 10.11. SEVERABILITY......................................................125 10.12. OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS........125 10.13. ENTIRE AGREEMENT..................................................126 10.14. HEADINGS..........................................................126 10.15. APPLICABLE LAW....................................................126 10.16. CONSENT TO JURISDICTION...........................................126 10.17. WAIVER OF JURY TRIAL..............................................127 10.18. CONFIDENTIALITY...................................................127 10.19. USURY SAVINGS CLAUSE..............................................128 10.20. COUNTERPARTS......................................................128 10.21. EFFECTIVENESS.....................................................128
APPENDICES: A-1 Tranche A Term Loan Commitments A-2 Tranche B Term Loan Commitments A-3 Revolving Commitments B Notice Addresses SCHEDULES: 1.1 Certain Calculations 1.2 Existing Permitted Partially-Owned Subsidiaries 3.1(i) Closing Date Mortgaged Properties 4.1 Jurisdictions of Organization and Qualification 4.2 Capital Stock and Ownership 4.10 Restricted Junior Payments 4.13 Real Estate Assets 6.1 Certain Indebtedness 6.2 Certain Liens 6.7 Certain Investments EXHIBITS: A-1 Funding Notice A-2 Conversion/Continuation Notice B-1 Tranche A Term Loan Note B-2 Tranche B Term Loan Note B-3 Revolving Loan Note B-4 Swing Line Note C Compliance Certificate D Opinions of Counsel E Assignment Agreement F Certificate Re Non-bank Status G-1 Closing Date Certificate G-2 Solvency Certificate H Counterpart Agreement I Pledge and Security Agreement J Mortgage K Form of Permitted Seller Note
CREDIT AND GUARANTY AGREEMENT This CREDIT AND GUARANTY AGREEMENT, dated as of September 20, 2000, is entered into by and among VICAR OPERATING, INC., a Delaware corporation ("COMPANY"), VETERINARY CENTERS OF AMERICA, INC., a Delaware corporation ("HOLDINGS"), CERTAIN SUBSIDIARIES OF COMPANY, as Guarantors, the Lenders party hereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P. ("GSCP"), as Sole Lead Arranger (in such capacity, "LEAD ARRANGER"), and as Sole Syndication Agent (in such capacity, "SYNDICATION AGENT"), and WELLS FARGO BANK, N.A. ("WELLS FARGO"), as Administrative Agent (together with its permitted successors in such capacity, "ADMINISTRATIVE AGENT") and as Collateral Agent (together with its permitted successor in such capacity, "COLLATERAL AGENT"). RECITALS: WHEREAS, capitalized terms used in these Recitals shall have the respective meanings set forth for such terms in Section 1.1 hereof; WHEREAS, Holdings, Company and Merger Corp. have entered into the Merger Agreement pursuant to which a series of acquisition transactions will occur and whereby, (i) Sponsor and its Co-Investors will acquire all of the outstanding Capital Stock of Holdings (other than the Rollover Equity, the Warrants and the Preferred Stock) and (ii) Holdings will be the holder of all of the outstanding Capital Stock of Company; WHEREAS, the Lenders have agreed to extend certain credit facilities to Company, in an aggregate principal amount not to exceed $300,000,000, consisting of $250,000,000 aggregate principal amount of Term Loans and up to $50,000,000 aggregate principal amount of Revolving Commitments. The proceeds of the Term Loans will be used by Company to fund, a portion of the Acquisition Financing Requirements, to repay the Existing Indebtedness of Holdings and its Subsidiaries and to pay related fees and expenses. The proceeds of the Revolving Loans made after the Closing Date shall be applied by Company for working capital and general corporate purposes of Company and its Subsidiaries; WHEREAS, Company has agreed to secure all of its Obligations by granting to Collateral Agent, for the benefit of Secured Parties, a First Priority Lien on certain of its assets, including a pledge of all of the Capital Stock of each of its Domestic Subsidiaries and 65% of all the Capital Stock of each of its Foreign Subsidiaries; and WHEREAS, Guarantors have agreed to guarantee the obligations of Company hereunder and to secure their respective Obligations by granting to Collateral Agent, for the benefit of Secured Parties, a First Priority Lien on certain of their respective assets, including a pledge of all of the Capital Stock of each of their respective Domestic Subsidiaries (including Company) and 65% of all the Capital Stock of each of their respective Foreign Subsidiaries. NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained the parties hereto agree as follows: Page 7 SECTION 1. DEFINITIONS AND INTERPRETATION 1.1. DEFINITIONS. The following terms used herein, including in the preamble, recitals, exhibits and schedules hereto, shall have the following meanings: "ACQUISITION" means the Merger and the other transactions contemplated by the Merger Agreement. "ACQUISITION FINANCING REQUIREMENTS" means the aggregate of all amounts necessary (i) to pay the cash consideration for the Acquisition, (ii) to refinance all Existing Indebtedness (other than certain existing Indebtedness of Holdings and its Subsidiaries permitted under Section 6.1(j)) and (iii) to pay the Transaction Costs. "ADJUSTED EURODOLLAR RATE" means, for any Interest Rate Determination Date with respect to an Interest Period for a Eurodollar Rate Loan, the rate per annum obtained by dividing (and rounding upward to the next whole multiple of 1/16 of 1%)(i)(a) the rate per annum (rounded to the nearest 1/100 of 1%) equal to the rate determined by Administrative Agent to be the offered rate which appears on the page of the Telerate Screen which displays an average British Bankers Association Interest Settlement Rate (such page currently being page number 3740 or 3750, as applicable) for deposits (for delivery on the first day of such period) with a term equivalent to such period in Dollars, determined as of approximately 11:00 a.m. (London, England time) on such Interest Rate Determination Date, or (b) in the event the rate referenced in the preceding clause (a) does not appear on such page or service or if such page or service shall cease to be available, the rate per annum (rounded to the nearest 1/100 of 1%) equal to the rate determined by Administrative Agent to be the offered rate on such other page or other service which displays an average British Bankers Association Interest Settlement Rate for deposits (for delivery on the first day of such period) with a term equivalent to such period in Dollars, determined as of approximately 11:00 a.m. (London, England time) on such Interest Rate Determination Date, or (c) in the event the rates referenced in the preceding clauses (a) and (b) are not available, the rate per annum (rounded to the nearest 1/100 of 1%) equal to the offered quotation rate to first class banks in the London interbank market by Wells Fargo for deposits (for delivery on the first day of the relevant period) in Dollars of amounts in same day funds comparable to the principal amount of the applicable Loan of Administrative Agent, in its capacity as a Lender, for which the Adjusted Eurodollar Rate is then being determined with maturities comparable to such period as of approximately 11:00 a.m. (London, England time) on such Interest Rate Determination Date, by (ii) an amount equal to (a) one MINUS (b) the Applicable Reserve Requirement. "ADMINISTRATIVE AGENT" as defined in the preamble hereto. "ADVERSE PROCEEDING" means any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration (whether or not purportedly on behalf of Holdings or any of its Subsidiaries) at law or in equity, or before or by any Governmental Authority, domestic or foreign (including any Environmental Claims), whether pending or, to the knowledge of Holdings or any of its Subsidiaries, threatened against or affecting Holdings or any of its Subsidiaries or any property of Holdings or any of its Subsidiaries. Page 8 "AFFECTED LENDER" as defined in Section 2.17(b). "AFFECTED LOANS" as defined in Section 2.17(b). "AFFILIATE" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power (i) to vote 10% or more of the Securities having ordinary voting power for the election of directors of such Person or (ii) to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. "AGENT" means each of Lead Arranger, Syndication Agent, Administrative Agent and Collateral Agent. "AGGREGATE AMOUNTS DUE" as defined in Section 2.16. "AGGREGATE PAYMENTS" as defined in Section 7.2. "AGREEMENT" means this Credit and Guaranty Agreement, dated as of September 20, 2000, as it may be amended, supplemented or otherwise modified from time to time. "APPLICABLE MARGIN" means (i) with respect to Tranche A Term Loans and Revolving Loans that are Eurodollar Rate Loans (a) from the Closing Date until the date of delivery of the Compliance Certificate and the financial statements for the period ending twelve months after the Closing Date, 3.25%, per annum; and (b) thereafter, a percentage, per annum, determined by reference to the Leverage Ratio in effect from time to time as set forth below: LEVERAGE APPLICABLE MARGIN RATIO FOR EURODOLLAR LOAN ---------------- ------------------- > 3.75:1.00 3.25% - < 3.75:1.00 3.00% > 3.25:1.00 - < 3.25:1.00 2.75% > 2.75:1.00 - < 2.75:1.00 2.50% > 2.25:1.00 - < 2.25:1.00 2.00% , (ii) with respect to Tranche A Term Loans and Revolving Loans that are Base Rate Loans, the Applicable Margin for Eurodollar Rate Loans as set forth in clause (i)(a) or (i)(b) above, as applicable, minus (b) 1.00% per annum and (iii) with respect to Swing Line Loans, (a) the Applicable Margin for Eurodollar Rate Loans as set forth in clause (i)(a) or (i)(b) above, as Page 9 applicable, minus (b) the sum of 1.00% per annum plus the then Applicable Revolving Commitment Fee Percentage. No change in the Applicable Margin shall be effective until three Business Days after the date on which Administrative Agent shall have received the applicable financial statements and a Compliance Certificate pursuant to Section 5. 1 (d) calculating the Leverage Ratio. At any time Company has not submitted to Administrative Agent the applicable information as and when required under Section 5.1(d), the Applicable Margin shall be determined as if the Leverage Ratio were in excess of 3.75:1.00. Within one Business Day of receipt of the applicable information as and when required under Section 5. 1 (d), Administrative Agent shall give each Lender telefacsimile or telephonic notice (confirmed in writing) of the Applicable Margin in effect from such date. "APPLICABLE RESERVE REQUIREMENT" means, at any time, for any Eurodollar Rate Loan, the maximum rate, expressed as a decimal, at which reserves (including, without limitation, any basic marginal, special, supplemental, emergency or other reserves) are required to be maintained with respect thereto against "Eurocurrency liabilities" (as such term is defined in Regulation D) under regulations issued from time to time by the Board of Governors of the Federal Reserve System or other applicable banking regulator. Without limiting the effect of the foregoing, the Applicable Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the applicable Adjusted Eurodollar Rate or any other interest rate of a Loan is to be determined, or (ii) any category of extensions of credit or other assets which include Eurodollar Rate Loans. A Eurodollar Rate Loan shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to reserve requirements without benefits of credit for proration, exceptions or offsets that may be available from time to time to the applicable Lender. The rate of interest on Eurodollar Rate Loans shall be adjusted automatically on and as of the effective date of any change in the Applicable Reserve Requirement. "APPLICABLE REVOLVING COMMITMENT FEE PERCENTAGE" means a percentage, per annum, equal to (i) 0.75% with respect to any period during which the Total Utilization of Revolving Commitments is less than 50% and (ii) 0.50% at all other times. "ASSET SALE" means a sale, lease or sub-lease (as lessor or sublessor), sale and leaseback, assignment, conveyance, transfer or other disposition to, or any exchange of property with, any Person (other than Company or a Guarantor Subsidiary), in one transaction or a series of transactions, of all or any part of Holdings' or any of its Subsidiaries' businesses, assets or properties of any kind, whether real, personal, or mixed and whether tangible or intangible, whether now owned or hereafter acquired, including, without limitation, the Capital Stock of any of Holdings' Subsidiaries (PROVIDED, HOWEVER, that solely for purposes of Section 2.13(a), such sale of Capital Stock shall not be considered an Asset Sale), other than (i) inventory (or other assets) sold or leased in the ordinary course of business, and (ii) sales of other assets for aggregate consideration of less than $750,000 with respect to any transaction or series of related transactions. "ASSIGNMENT AGREEMENT" means an Assignment Agreement substantially in the form of Exhibit E, with such amendments or modifications as may be approved by Administrative Agent. Page 10 "AUTHORIZED OFFICER" means, as applied to any Person, any individual holding the position of chairman of the board (if an officer), chief executive officer, president or one of its vice presidents (or the equivalent thereof), and such Person's chief financial officer or treasurer. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy," as now and hereafter in effect, or any successor statute. "BASE RATE" means, for any day, a rate per annum equal to the greater of (i) the Prime Rate in effect on such day and (ii) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "BASE RATE LOAN" means a Loan bearing interest at a rate determined by reference to the Base Rate. "BENEFICIARY" means each Agent, Lender and Lender Counterparty. "BUSINESS DAY" means (i) any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York and/or California or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close and (ii) with respect to all notices, determinations, fundings and payments in connection with the Adjusted Eurodollar Rate or any Eurodollar Rate Loans, the term "BUSINESS DAY" shall mean any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in Dollar deposits in the London interbank market. "CAPITAL LEASE" means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person. "CAPITAL STOCK" means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), including, without limitation, partnership interests and membership interests, and any and all warrants, rights or options to purchase or other arrangements or rights to acquire any of the foregoing. "CASH" means money, currency or a credit balance in any demand or Deposit Account. "CASH EQUIVALENTS" means, as at any date of determination, (i) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government or (b) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such date; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the Page 11 acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year after such date and issued or accepted by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (a) is at least "adequately capitalized" (as defined in the regulations of its primary Federal banking regulator) and (b) has Tier 1 capital (as defined in such regulations) of not less than $100,000,000; and (v) shares of any money market mutual fund that (a) has substantially all of its assets invested continuously in the types of investments referred to in clauses (i) through (iv) above, (b) has net assets of not less than $500,000,000, and (c) has the highest rating obtainable from either S&P or Moody's. "CERTIFICATE RE NON-BANK STATUS" means a certificate substantially in the form of Exhibit F. "CHANGE OF CONTROL" means, at any time, (i) Sponsor, Co-Investors and Management Investors shall collectively cease to beneficially own and control at least 51% on a fully diluted basis of the voting interests in the Capital Stock of Holdings; (ii) any Person or "group" (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act) other than Sponsor (a) shall have acquired beneficial ownership of 35% or more on a fully diluted basis of the voting interests in the Capital Stock of Holdings or (b) shall have obtained the power (whether or not exercised) to elect a majority of the members of the board of directors (or similar governing body) of Holdings; (iii) Sponsor and Co-Investors shall collectively cease to beneficially own and control on a fully diluted basis a percentage of the voting interests in the Capital Stock of Holdings greater than any other Person or group (within the meaning of Rules 13d-3 and 13d-5 of the Exchange Act); (iv) Holdings shall cease to beneficially own and control 100% on a fully diluted basis of the Capital Stock of Company; or (v) the majority of the seats (other than vacant seats) on the board of directors (or similar governing body) of Company cease to be occupied by Persons who either (a) were members of the board of directors of Company on the Closing Date or (b) were nominated for election by the board of directors of Company, a majority of whom were directors on the Closing Date or whose election or nomination for election was previously approved by a majority of such directors; or (vi) any "change of control" or similar event under the Holdings Senior Note Documents or the Senior Subordinated Note Documents shall occur. "CLASS" means (i) with respect to Lenders, each of the following classes of Lenders: (a) Lenders having Tranche A Term Loan Exposure, (b) Lenders having Tranche B Term Loan Exposure, and (c) Lenders having Revolving Exposure (including Swing Line Lender), and (ii) with respect to Loans, each of the following classes of Loans: (a) Tranche A Term Loans, (b) Tranche B Term Loans, and (c) Revolving Loans (including Swing Line Loans). "CLOSING DATE" means the date on or before September 20, 2000 on which the initial borrowing of Term Loans and Revolving Loans are made. Page 12 "CLOSING DATE CERTIFICATE" means a Closing Date Certificate substantially in the form of Exhibit G-1. "CLOSING DATE MORTGAGED PROPERTY" as defined in Section 3.1(i). "CO-INVESTORS" means certain entities affiliated with (i) Trust Company of the West and Hamilton Lane Advisors and (ii) the following limited partners in Sponsor: (a) CalPERS, (b) Caisse De Depot, (c) Procific and (d) PPM America. "COLLATERAL" means, collectively, all of the real, personal and mixed property (including Capital Stock) in which Liens are purported to be granted pursuant to the Collateral Documents as security for the Obligations. "COLLATERAL AGENT" means the institution serving as such under the Collateral Documents. "COLLATERAL DOCUMENTS" means the Pledge and Security Agreement, the Mortgages and all other instruments, documents and agreements delivered by any Credit Party pursuant to this Agreement or any of the other Credit Documents in order to grant to Collateral Agent, for the benefit of Secured Parties, a Lien on any real, personal or mixed property of that Credit Party as security for the Obligations. "COMMITMENT" means any Revolving Commitment or Term Loan Commitment. "COMPANY" as defined in the preamble hereto. "COMPANY PURCHASE AGREEMENT" means that certain Purchase Agreement dated as of September 20, 2000 by and among Company, GS Mezzanine Partners II, L.P. and Permitted Investors, pursuant to which the Senior Subordinated Notes are sold, as in effect on the Closing Date and as such agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted by Section 6.16. "COMPLIANCE CERTIFICATE" means a Compliance Certificate substantially in the form of Exhibit C. "CONSOLIDATED ADJUSTED EBITDA" means, for any period, an amount determined for Company and its Subsidiaries on a consolidated basis equal to (i) the sum, without duplication, of the amounts for such period of (a) Consolidated Net Income, (b) Consolidated Interest Expense, (c) provisions for taxes based on income, (d) total depreciation expense, (e) total amortization expense, (f) other non-Cash items reducing Consolidated Net Income (excluding any such non-Cash item to the extent that it represents an accrual or reserve for potential Cash items in any future period or amortization of a prepaid Cash item that was paid in a prior period but, notwithstanding anything to the contrary herein, including without limitation, reserves for lease expense and other charges and expenses related to the closure of hospitals to the extent not paid in cash), (g) to the extent deducted in calculating Consolidated Net Income, Transaction Costs and (h) payments made under the Management Services Agreement in accordance with the provisions of Section 6.5(l), MINUS (ii) other non-Cash items increasing Consolidated Net Income for such period (excluding any such non-Cash item to the Page 13 extent it represents the reversal of an accrual or reserve for potential Cash item in any prior period); PROVIDED that the foregoing shall be subject to the adjustments described in Schedule 1.1. "CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the aggregate of all expenditures of Company and its Subsidiaries during such period determined on a consolidated basis that, in accordance with GAAP, are or should be included in "purchase of property and equipment" or similar items reflected in the consolidated statement of cash flows of Company and its Subsidiaries excluding, (i) any acquisition of assets that constitutes a Permitted Acquisition and (ii) any expenditures made by Company pursuant to Sections 2.13(a) and 2.13(b) hereof. "CONSOLIDATED CASH INTEREST EXPENSE" means, for any period, Consolidated Interest Expense for such period, PLUS, interest payable by Holdings, pursuant to the Holdings Senior Notes, excluding, in each case, any amount not payable in Cash. "CONSOLIDATED CURRENT ASSETS" means, as at any date of determination, the total assets of Company and its Subsidiaries on a consolidated basis that may properly be classified as current assets in conformity with GAAP, excluding Cash and Cash Equivalents. "CONSOLIDATED CURRENT LIABILITIES" means, as at any date of determination, the total liabilities of Company and its Subsidiaries on a consolidated basis that may properly be classified as current liabilities in conformity with GAAP, excluding the current portion of long term debt. "CONSOLIDATED EXCESS CASH FLOW" means, for any period, an amount (if positive) equal to: (i) the sum, without duplication, of the amounts for such period of (a) Consolidated Adjusted EBITDA, and (b) the Consolidated Working Capital Adjustment, MINUS (ii) the sum, without duplication, of the amounts for such period of (a) voluntary and scheduled repayments of Consolidated Total Debt (excluding repayments of Revolving Loans or Swing Line Loans except to the extent the Revolving Commitments are permanently reduced in connection with such repayments), (b) Consolidated Capital Expenditures (net of any proceeds of any related financings with respect to such expenditures), (c) Consolidated Cash Interest Expense, (d) the provision for current taxes based on income of Holdings and its Subsidiaries and payable in cash with respect to such period, (e) to the extent not otherwise deducted in determining Consolidated Excess Cash Flow, cash payments made in connection with Permitted Acquisitions (net of any proceeds of related financing), (f) all amounts which were paid in cash (or which would have been payable but for the existence and continuance of an Event of Default) to Holdings or Leonard Green & Partners, L.P. in conformity with the provisions of Section 6.5 and Section 6.7(i) hereof, (g) all amounts that were made as Investments (or which would have been made as Investments but for the existence and continuance of an Event of Default) in Persons, other than Holdings, Company or a Guarantor Subsidiary in conformity with the provisions of Section 6.7 hereof, (h) Transaction Costs to the extent included in determining Consolidated Adjusted EBITDA and to the extent paid in cash during such period (net of any proceeds of any related financing with respect thereto) and, without duplication, whether or not included in determining Consolidated Adjusted EBITDA Transaction Costs (A) made to purchase the restricted Capital Stock of Holdings in an amount not to exceed $2,000,000 and (B) Page 14 made pursuant to certain noncompetition agreements with members of senior management of Holdings in an aggregate amount not to exceed $10,000,000 and (i) all amounts that were distributed pro rata to the holders of Capital Stock of Subsidiaries of Company (other than Company and Subsidiaries of Company) or that were paid in cash to repurchase the Capital Stock of any Subsidiary of Company from a Person who is not an Affiliate of Company in conformity with the provisions of Sections 6.5 and 6.7, and MINUS (or plus) (iii) the amount by which outstanding loans permitted pursuant to Section 6.7(g) hereof increased or decreased during such period when compared to the immediately preceding Fiscal Year. "CONSOLIDATED FIXED CHARGES" means, for any period, the sum, without duplication, of the amounts determined for Company and its Subsidiaries on a consolidated basis equal to (i) Consolidated Cash Interest Expense, (ii) scheduled payments of principal on Consolidated Total Debt, (iii) Consolidated Capital Expenditures, (iv) annual management or similar fees paid to Sponsor or any of its Affiliates and (v) provisions for current cash taxes based on income with respect to such period; provide that Consolidated Fixed Charges for any period prior to the Closing Date shall be determined in accordance with Schedule 1.1. "CONSOLIDATED INTEREST EXPENSE" means, for any period, total interest expense (including that portion attributable to Capital Leases in accordance with GAAP and capitalized interest) of Company and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of Company and its Subsidiaries, including all commissions, discounts and other fees and charges owed with respect to letters of credit and net costs under Interest Rate Agreements, but excluding, however, any amounts referred to in Section 2.10(c) payable on or before the Closing Date and any fees paid under or in connection with the Senior Subordinated Note Documents; PROVIDED that Consolidated Interest Expense for any period prior to the Closing Date shall be determined in accordance with Schedule 1.1. "CONSOLIDATED NET INCOME" means, for any period, (i) the net income (or loss) of Company and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP, MINUS (ii) (a) the income of any Person (other than a Subsidiary of Company) in which any other Person (other than Company or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to Company or any of its Subsidiaries by such Person during such period, (b) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Company or is merged into or consolidated with Company or any of its Subsidiaries or that Person's assets are acquired by Company or any of its Subsidiaries, (c) the income of any Subsidiary of Company to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (d) any after-tax gains or losses attributable to Asset Sales or returned surplus assets of any Pension Plan, and (e) (to the extent not included in clauses (a) through (d) above) any net extraordinary gains or net extraordinary losses. "CONSOLIDATED TOTAL DEBT" means, as at any date of determination, the aggregate stated balance sheet amount of all Indebtedness of Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP. Page 15 "CONSOLIDATED TOTAL SENIOR DEBT" means as of any date of determination, the total amount of Indebtedness incurred by Company and its Subsidiaries pursuant to this Agreement, determined as of the last day of any Fiscal Quarter, MINUS the outstanding principal amount of Senior Subordinated Notes. "CONSOLIDATED WORKING CAPITAL" means, as at any date of determination, the excess of Consolidated Current Assets over Consolidated Current Liabilities. "CONSOLIDATED WORKING CAPITAL ADJUSTMENT" means, for any period on a consolidated basis, the amount (which may be a negative number) by which Consolidated Working Capital as of the beginning of such period exceeds (or is less than) Consolidated Working Capital as of the end of such period. "CONTRACTUAL OBLIGATION" means, as applied to any Person, any provision of any Security issued by that Person or of any indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject. "CONVERSION/CONTINUATION DATE" means the effective date of a continuation conversion, as the case may be, as set forth in the applicable Conversion/Continuation Notice. "CONVERSION/CONTINUATION NOTICE" means a Conversion/Continuation Notice substantially in the form of Exhibit A-2. "COUNTERPART AGREEMENT" means a Counterpart Agreement substantially in the form of Exhibit H delivered by a Credit Party pursuant to Section 5.10. "CONTRIBUTING GUARANTORS" as defined in Section 7.2. "CREDIT DATE" means the date of a Credit Extension. "CREDIT DOCUMENT" means any of this Agreement, the Notes, if any, the Collateral Documents and all other documents, instruments or agreements executed and delivered by a Credit Party for the benefit of any Agent or any Lender in connection herewith, including, without limitation, any Hedge Agreement entered into in connection herewith. "CREDIT EXTENSION" means the making of a Loan. "CREDIT PARTY" means each Person (other than any Agent or any Lender or any other representative thereof) from time to time party to a Credit Document. "CURRENCY AGREEMENT" means any foreign exchange contract, currency swap agreement, futures contract, option contract, synthetic cap or other similar agreement or arrangement, each of which is for the purpose of hedging the foreign currency risk associated with Holdings' and its Subsidiaries' operations and not for speculative purposes. "DEFAULT" means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default. Page 16 "DEFAULT EXCESS" means, with respect to any Defaulting Lender, the excess, if any, of such Defaulting Lender's Pro Rata Share of the aggregate outstanding principal amount of Loans of all Lenders (calculated as if all Defaulting Lenders (other than such Defaulting Lender) had funded all of their respective Defaulted Loans) over the aggregate outstanding principal amount of all Loans of such Defaulting Lender. "DEFAULT PERIOD" means, with respect to any Defaulting Lender, the period commencing on the date of the applicable Funding Default and ending on the earliest of the following dates: (i) the date on which all Commitments are cancelled or terminated and/or the Obligations are declared or become immediately due and payable, (ii) the date on which (a) the Default Excess with respect to such Defaulting Lender shall have been reduced to zero (whether by the funding by such Defaulting Lender of any Defaulted Loans of such Defaulting Lender or by the non-pro rata application of any voluntary or mandatory prepayments of the Loans in accordance with the terms of Section 2.13 or Section 2.14 or by a combination thereof) and (b) such Defaulting Lender shall have delivered to Company and Administrative Agent a written reaffirmation of its intention to honor its obligations hereunder with respect to its Commitments, and (iii) the date on which Company, Administrative Agent and Requisite Lenders waive all Funding Defaults of such Defaulting Lender in writing. "DEFAULTING LENDER" as defined in Section 2.21. "DEFAULTED LOAN" as defined in Section 2.21. "DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit. "DOLLARS" and the sign "$" mean the lawful money of the United States of America. "DOMESTIC SUBSIDIARY" means any Subsidiary organized under the laws of the United States of America, any State thereof or the District of Columbia. "EARN-OUT OBLIGATIONS" means any unsecured contingent liability of Holdings or any of its Subsidiaries owed to any seller in connection with a Permitted Acquisition that (a) constitutes a portion of the purchase price for such Permitted Acquisition but is not an amount certain on the date of incurrence thereof and is not subject to any right of acceleration by such seller and (b) is only payable upon the achievement of performance standards by the Person or other property acquired in such Permitted Acquisition and in an amount based upon such achievement provided that the maximum aggregate amount of such liability shall be fixed at a specified amount on the date of such Permitted Acquisition. "ELIGIBLE ASSIGNEE" means (i) any Lender, any Affiliate of any Lender and any Related Fund (any two or more Related Funds being treated as a single Eligible Assignee for all purposes hereof), and (ii) any commercial bank, insurance company, investment or mutual fund or other entity that is an "accredited investor" (as defined in Regulation D under the Securities Act) and which extends credit or buys loans as one of its businesses; PROVIDED, no Affiliate of Holdings shall be an Eligible Assignee. Page 17 "EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined in Section 3(3) of ERISA which is or was sponsored, maintained or contributed to by, or required to be contributed by, Holdings or any of its Subsidiaries or, to the extent that Holdings or any of its Subsidiaries would be liable under ERISA in respect thereof, any of their respective ERISA Affiliates. "EMPLOYMENT AGREEMENT" means any of the following: (i) the Employment Agreement dated as of the date hereof by and between Holdings and Robert L. Antin, (ii) the Employment Agreement dated as of the date hereof by and between Holdings and Arthur Antin, (iii) the Employment Agreement dated as of the date hereof by and between Holdings and Neal Tauber, and (iv) the Employment Agreement dated as of the date hereof by and between Holdings and Tomas Fuller, and as such agreements may be amended, restated or otherwise modified from time to time in accordance with Section 6.15. "ENVIRONMENTAL CLAIM" means any investigation, notice, notice of violation, claim, action, suit, proceeding, demand, abatement order or other order or directive (conditional or otherwise), by any governmental authority or any other Person, arising (i) pursuant to or in connection with any actual or alleged violation of any Environmental Law; (ii) in connection with any Hazardous Material or any actual or alleged Hazardous Materials Activity; or (iii) in connection with any actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment. "ENVIRONMENTAL LAWS" means any and all current or future foreign or domestic, federal or state (or any subdivision of either of them), statutes, ordinances, orders, rules, regulations, guidance documents, judgments, Governmental Authorizations, or any other requirements of Governmental Authorities relating to (i) environmental matters, including those relating to any Hazardous Materials Activity; (ii) the generation, use, storage, transportation or disposal of Hazardous Materials; or (iii) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare, in any manner applicable to Holdings or any of its Subsidiaries or any Facility. "EQUITY CONTRIBUTION" means, collectively, (i) the Rollover Equity by the Management Investors and (ii) Sponsor's and its Co-Investor's (a) payment (at the rate of $15 per share) of cash to Robert L. Antin in exchange for certain shares of the Capital Stock of Holdings, (b) contribution of cash and certain shares of Capital Stock of Holdings to Merger Corp. in exchange for all of the outstanding Capital Stock of Merger Corp. and (c) contribution of cash to Holdings in exchange for all of the outstanding Capital Stock of Holdings (other than the Preferred Stock, the Warrants, the Rollover Equity and the Capital Stock of Holdings issued in the Merger for the outstanding Capital Stock of Merger Corp.); PROVIDED, that the aggregate amount of the cash payments and contributions described in clauses (a), (b) and (c) above, shall not be less than $155,000,000. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto. "ERISA AFFILIATE" means, as applied to any Person, (i) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Page 18 Internal Revenue Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. Any former ERISA Affiliate of Holdings or any of its Subsidiaries shall continue to be considered an ERISA Affiliate of Holdings or any such Subsidiary within the meaning of this definition with respect to the period such entity was an ERISA Affiliate of Holdings or such Subsidiary and with respect to liabilities arising after such period for which Holdings or such Subsidiary could be liable under the Internal Revenue Code or ERISA. "ERISA EVENT" means (i) a "reportable event" within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation); (ii) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in liability pursuant to Section 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which might constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability on Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal of Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential liability therefor, or the receipt by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of an act or omission which could give rise to the imposition on Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409, Section 502(c), (i) or (1), or Section 4071 of ERISA in respect of any Employee Benefit Plan; (ix) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code; or (x) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan. Page 19 "EURODOLLAR RATE LOAN" means a Loan bearing interest at a rate determined by reference to the Adjusted Eurodollar Rate. "EVENT OF DEFAULT" means each of the conditions or events set forth in Section 8.1. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "EXISTING INDEBTEDNESS" means all Indebtedness of Holdings and its Subsidiaries outstanding immediately prior to the Closing Date. "FACILITY" means any real property (including all buildings, fixtures or other improvements located thereon) now, hereafter or heretofore owned, leased, operated or used by Holdings or any of its Subsidiaries or any of their respective predecessors or Affiliates. "FAIR SHARE CONTRIBUTION AMOUNT" as defined in Section 7.2. "FAIR SHARE" as defined in Section 7.2. "FAIR SHARE SHORTFALL" as defined in Section 7.2. "FEDERAL FUNDS EFFECTIVE RATE" means for any day, the rate per annum (expressed, as a decimal, rounded upwards, if necessary, to the next higher 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; PROVIDED, (i) if such day is not a Business Day, the Federal Funds Effective Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if no such rate is so published on such next succeeding Business Day, the Federal Funds Effective Rate for such day shall be the average rate charged to Administrative Agent, in its capacity as a Lender, on such day on such transactions as determined by Administrative Agent. "FINANCIAL OFFICER CERTIFICATION" means, with respect to the financial statements for which such certification is required, the certification of the chief financial officer of Holdings that such financial statements fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments. "FINANCIAL PLAN" as defined in Section 5.1(i). "FIRST PRIORITY" means, with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that such Lien is the only Lien to which such Collateral is subject, other than Permitted Liens. "FISCAL QUARTER" means a fiscal quarter of any Fiscal Year. Page 20 "FISCAL YEAR" means the fiscal year of Holdings and its Subsidiaries ending on December 31 of each calendar year. "FIXED CHARGE COVERAGE RATIO" means the ratio as of the last day of any Fiscal Quarter of (i) Consolidated Adjusted EBITDA for the four-Fiscal Quarter period then ending, to (ii) Consolidated Fixed Charges for such four-Fiscal Quarter period. "FLOOD HAZARD PROPERTY" means any Real Estate Asset subject to a Mortgage and located in an area designated by the Federal Emergency Management Agency as having special flood or mud slide hazards. "FOREIGN SUBSIDIARY" means any Subsidiary that is not a Domestic Subsidiary. "FUNDING DEFAULT" as defined in Section 2.21. "FUNDING GUARANTORS" as defined in Section 7.2. "FUNDING NOTICE" means a notice substantially in the form of Exhibit A-1. "GAAP" means, subject to the limitations on the application thereof set forth in Section 1.2, United States generally accepted accounting principles in effect as of the date of determination thereof. "GOVERNMENTAL ACTS" means any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority. "GOVERNMENTAL AUTHORITY" means any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government. "GOVERNMENTAL AUTHORIZATION" means any permit, license, authorization, plan, directive, consent order or consent decree of or from any Governmental Authority. "GRANTOR" as defined in the Pledge and Security Agreement. "GUARANTEED OBLIGATIONS" as defined in Section 7.1. "GUARANTOR" means each of Holdings and each Domestic Subsidiary of Holdings (other than Company and certain Permitted Partially-Owned Subsidiaries that do not provide a Guaranty). "GUARANTOR SUBSIDIARY" means each Guarantor other than Holdings. "GUARANTY" means the guaranty of each Guarantor set forth in Section 7. Page 21 "HAZARDOUS MATERIALS" means any chemical, material or substance, exposure to which is prohibited, limited or regulated by any Governmental Authority or which may or could pose a hazard to the health and safety of the owners, occupants or any Persons in the vicinity of any Facility or to the indoor or outdoor environment. "HAZARDOUS MATERIALS ACTIVITY" means any past, current, proposed or threatened activity, event or occurrence involving any Hazardous Materials, including the use, manufacture, possession, storage, holding, presence, existence, location, Release, threatened Release, discharge, placement, generation, transportation, processing, construction, treatment, abatement, removal, remediation, disposal, disposition or handling of any Hazardous Materials, and any corrective action or response action with respect to any of the foregoing. "HEDGE AGREEMENT" means an Interest Rate Agreement or a Currency Agreement entered into with a Lender Counterparty in order to satisfy the requirements of this Agreement. "HIGHEST LAWFUL RATE" means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws applicable to any Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. "HISTORICAL FINANCIAL STATEMENTS" means as of the Closing Date, (i) the audited financial statements of Holdings and its Subsidiaries, for the immediately preceding three Fiscal Years, consisting of balance sheets and the related consolidated statements of income, stockholders' equity and cash flows for such Fiscal Years, and (ii) the unaudited financial statements of Holdings and its Subsidiaries as at the most recently ended Fiscal Quarter, consisting of a balance sheet and the related consolidated statements of income, stockholders' equity and cash flows for the three-, six- or nine-month period, as applicable, ending on such date, and, in the case of clauses (i) and (ii), certified by the chief financial officer of Company that they fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments. "HOLDINGS" as defined in the preamble hereto. "HOLDINGS PURCHASE AGREEMENT" means that certain Purchase Agreement dated as of September 20, 2000 by and among Holdings, GS Mezzanine Partners II, L.P. and Permitted Investors, pursuant to which the Holdings Senior Notes, the Preferred Stock, and the Warrants are sold, as in effect on the Closing Date and as such agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.16. "HOLDINGS REGISTRATION RIGHTS AGREEMENT" means the Exchange and Registration Rights Agreement dated as of September 20, 2000 among Holdings, GS Mezzanine Partners II, L.P. and Permitted Investors, as in effect on the Closing Date and as such agreement Page 22 may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.16. "HOLDINGS SENIOR NOTE DOCUMENTS" means the Holdings Senior Notes, the Holdings Senior Note Indenture, the Holdings Purchase Agreement, the Holdings Registration Rights Agreement, the Warrant Agreement, the Warrants and each other document executed in connection with the Holdings Senior Notes, as such document may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.16. "HOLDINGS SENIOR NOTE INDENTURE" means that certain Indenture dated as of September 20, 2000 between Holdings and Chase Manhattan Bank and Trust Company, National Association, as trustee, pursuant to which the Holdings Senior Notes are issued, as in effect on the Closing Date and as such indenture may hereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.16. "HOLDINGS SENIOR NOTES" means the $ 100,000,000 in aggregate principal amount of 15.5% senior notes due 2010, and any PIK Notes issued by Holdings pursuant to the Holdings Senior Note Indenture (including any Holdings Senior Notes or PIK Notes issued by Holdings pursuant to the Holdings Senior Note Indenture, the Holdings Purchase Agreement or the Holdings Registration Rights Agreement (the "HOLDINGS REPLACEMENT NOTES") in exchange for, and on substantially identical terms as, the original Holdings Senior Notes and PIK Notes; PROVIDED, that, the Holdings Replacement Notes may have changes to the relative ranking as among such Holdings Replacement Notes, the interest rate or yield so long as the principal amount and cash interest and premium expense to Holdings shall not exceed such principal amount and cash interest and premium expense of the original Holdings Senior Notes or PIK Notes prior to such exchange and so long as the aggregate amounts paid, and the dates of payment thereof, with respect to the Holdings Replacement Notes shall not be different from the aggregate amounts paid and the dates of payment of the original Holdings Senior Notes or PIK Notes prior to such exchange), as such notes may hereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.16. "INCREASED AMOUNT DATE" as defined in Section 2.1(c). "INCREASED-COST LENDERS" as defined in Section 2.22. "INDEBTEDNESS", as applied to any Person, means, without duplication, (i) all indebtedness for borrowed money; (ii) that portion of obligations with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP; (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money; (iv) any obligation owed for all or any part of the deferred purchase price of property or services (excluding any such obligations incurred under ERISA and ordinary course trade payables), which purchase price is (a) due more than six months from the date of incurrence of the obligation in respect thereof or (b) evidenced by a note or similar written instrument; (v) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person; (vi) the face amount of any Page 23 letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings; (vii) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another; (viii) any obligation of such Person the primary purpose or intent of which is to provide assurance to an obligee that the obligation of the obligor thereof will be paid or discharged, or any agreement relating thereto will be complied with, or the holders thereof will be protected (in whole or in part) against loss in respect thereof, and (ix) any liability of such Person for the obligation of another through any agreement (contingent or otherwise) (a) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (b) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses (a) or (b) of this clause (ix), the primary purpose or intent thereof is as described in clause (viii) above; and (x) obligations of such Person in respect of any exchange traded or over the counter derivative transaction, including, without limitation, any Interest Rate Agreement and Currency Agreement, whether entered into for hedging or speculative purposes; PROVIDED, in no event shall obligations under any Interest Rate Agreement and any Currency Agreements be deemed "Indebtedness" for any purpose under Section 6.8. "INDEMNIFIED LIABILITIES" means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties and claims (including Environmental Claims), and any and all reasonable and documented costs (including the costs of any investigation, study, sampling, testing, abatement, cleanup, removal, remediation or other response action necessary to remove, remediate, clean up or abate any Hazardous Materials Activity), expenses and disbursements of any kind or nature whatsoever (including the reasonable and documented fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto, and any fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of (i) this Agreement or the other Credit Documents or the transactions contemplated hereby or thereby (including Lenders' agreement to make Credit Extensions or the use or intended use of the proceeds thereof, or any enforcement of any of the Credit Documents (including any sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Guaranty)); (ii) the statements contained in the commitment letter delivered by any Lender to Company or Sponsor with respect to the transactions contemplated by this Agreement; or (iii) any Environmental Claim or any Hazardous Materials Activity relating to or arising from, directly or indirectly, any past or present activity, operation, land ownership, or practice of Holdings or any of its Subsidiaries. "INDEMNITEE" as defined in Section 10.3. "INSTALLMENT" as defined in Section 2.11(a). Page 24 "INSTALLMENT DATE" as defined in Section 2.11(a). "INTEREST COVERAGE RATIO" means the ratio as of the last day of any Fiscal Quarter of (i) Consolidated Adjusted EBITDA for the four-Fiscal Quarter period then ended, to (ii) Consolidated Cash Interest Expense for such four-Fiscal Quarter period. "INTEREST PAYMENT DATE" means with respect to (i) any Base Rate Loan, the last Business Day of each March, June, September and December of each year, commencing on the first such date to occur after the Closing Date and the final maturity date of such Loan; and (ii) any Eurodollar Rate Loan, the last day of each Interest Period applicable to such Loan; PROVIDED, in the case of each Interest Period of longer than three months "Interest Payment Date" shall also include each date that is three months, or an integral multiple thereof, after the commencement of such Interest Period. "INTEREST PERIOD" means, in connection with a Eurodollar Rate Loan, an interest period of one-, two-, three- or six-months, as selected by Company in the applicable Funding Notice or Conversion/Continuation Notice, (i) initially, commencing on the Credit Date or Conversion/Continuation Date thereof, as the case may be; and (ii) thereafter, commencing on the day on which the immediately preceding Interest Period expires; PROVIDED, (a) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day unless no further Business Day occurs in such month, in which case such Interest Period shall expire on the immediately preceding Business Day; (b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clauses (c) through (d), of this definition, end on the last Business Day of a calendar month; (c) no Interest Period with respect to any portion of any Class of Term Loans shall extend beyond such Class's Term Loan Maturity Date; and (d) no Interest Period with respect to any portion of the Revolving Loans shall extend beyond the Revolving Commitment Termination Date. "INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedging agreement or other similar agreement or arrangement, each of which is for the purpose of hedging the interest rate exposure associated with Holdings' and its Subsidiaries' operations and not for speculative purposes. "INTEREST RATE DETERMINATION DATE" means, with respect to any Interest Period, the date that is two Business Days prior to the first day of such Interest Period. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, and any successor statute. "INVESTMENT" means (i) any direct or indirect purchase or other acquisition by Holdings or any of its Subsidiaries of, or of a beneficial interest in, any of the Securities of any other Person (other than Company or a Guarantor Subsidiary); (ii) any direct or indirect redemption, retirement, purchase or other acquisition for value, by any Subsidiary of Holdings from any Person (other than Holdings, Company or any Guarantor Subsidiary), of any Capital Stock of such Person; and (iii) any direct or indirect loan, advance (other than advances to Page 25 employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by Holdings or any of its Subsidiaries to any other Person (other than Holdings, Company or any Guarantor Subsidiary), including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. "INVESTMENT RELATED PROPERTY" as defined in the Pledge and Security Agreement. "JOINT VENTURE" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; PROVIDED, in no event shall any corporate Subsidiary of any Person be considered to be a Joint Venture to which such Person is a party. "JUNIOR PREFERRED STOCK" means the shares of junior preferred stock, par value $.01 per share of Holdings issued to GS Mezzanine Partners II, L.P. and Permitted Investors pursuant to the terms of the Holdings Purchase Agreement. "LANDLORD CONSENT AND ESTOPPEL" means, with respect to any Leasehold Property, a letter, certificate or other instrument in writing from the lessor under the related lease, pursuant to which, among other things, the landlord consents to the granting of a Mortgage on such Leasehold Property by the Credit Party tenant, such Landlord Consent and Estoppel to be in form and substance acceptable to the Collateral Agent in its reasonable discretion, but in any event sufficient for the Collateral Agent to obtain a Title Policy with respect to such Mortgage. "LEAD ARRANGER" as defined in the preamble hereto. "LEASEHOLD PROPERTY" means any leasehold interest of any Credit Party as lessee under any lease of real property, other than any such leasehold interest designated from time to time by Collateral Agent in its sole discretion as not being required to be included in the Collateral. "LENDER" means each financial institution listed on the signature pages hereto as a Lender and any other Person that becomes a party hereto pursuant to an Assignment Agreement. "LENDER COUNTERPARTY" means each Lender or any Affiliate of a Lender counterparty to a Hedge Agreement, including, without limitation, each such Affiliate that enters into a joinder agreement with the Collateral Agent. "LEVERAGE RATIO" means the ratio as of the last day of any Fiscal Quarter of (i) Consolidated Total Debt as of such day to (ii) Consolidated Adjusted EBITDA for the four-Fiscal Quarter period ending on such date (as determined in accordance with Section 6.8(f)). "LIEN" means (i) any lien, claim, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any agreement to give any of the foregoing, any Page 26 conditional sale or other title retention agreement, and any lease in the nature thereof) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing and (ii) in the case of Securities, any purchase option, call or similar right of a third party with respect to such Securities. "LOAN" means a Tranche A Term Loan, a Tranche B Term Loan, a Revolving Loan or a Swing Line Loan. "MANAGEMENT INVESTORS" means certain management, officers and employees of Holdings and its Subsidiaries disclosed to Syndication Agent and Administrative Agent pursuant to the Merger Agreement. "MANAGEMENT SERVICES AGREEMENT" means that certain Management Services Agreement, dated as of the Closing Date, by and between Leonard Green & Partners, L.P., on the one hand and Holdings and Company, on the other. "MARGIN STOCK" as defined in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings and its Subsidiaries, taken as a whole; (ii) the ability of any Credit Party to fully and timely perform the Obligations; (iii) the legality, validity, binding effect or enforceability against a Credit Party of a Credit Document to which it is a party; (iv) the rights, remedies and benefits available to, or conferred upon, any Agent and any Lender or any Secured Party under any Credit Document or (v) the Collateral or the Collateral Agent's Liens, on behalf of Secured Parties on the Collateral or the priority of such Liens. "MATERIAL CONTRACT" means any contract or other arrangement to which Holdings or any of its Subsidiaries is a party (other than the Credit Documents) for which breach, nonperformance, cancellation or failure to renew could reasonably be expected to have a Material Adverse Effect. "MATERIAL REAL ESTATE ASSET" means (i)(a) any fee-owned Real Estate Asset having a fair market value in excess of $50,000 as of the date of the acquisition thereof and (b) all Leasehold Properties other than those with respect to which the aggregate payments under the term of the lease are less than $150,000 per annum or (ii) any Real Estate Asset that the Requisite Lenders have determined is material to the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings or any Subsidiary thereof, including Company. "MERGER AGREEMENT" means that certain Amended and Restated Agreement and Plan of Merger dated as of August 11, 2000 by and among Holdings, Company and Merger Corp., and as such agreement may be amended, restated or otherwise modified from time to time pursuant to Section 6.15. "MERGER" means the merger of Merger Corp. with and into Holdings as contemplated by the Merger Agreement. Page 27 "MERGER CORP." means Vicar Recap, Inc., a Delaware corporation formed by Sponsor, for the purpose of engaging with Holdings and Company the Acquisition. "MOODY'S" means Moody's Investor Services, Inc. "MORTGAGE" means a Mortgage substantially in the form of Exhibit J, as it may be amended, supplemented or otherwise modified from time to time. "MULTIEMPLOYER PLAN" means any Employee Benefit Plan which is a "multiemployer plan" as defined in Section 3(37) of ERISA. "NAIC" means The National Association of Insurance Commissioners, and any successor thereto. "NARRATIVE REPORT" means, with respect to the financial statements for which such narrative report is required, a narrative report describing the operations of Holdings and its Subsidiaries in the form and to the extent prepared for presentation to senior management thereof for the applicable month, Fiscal Quarter or Fiscal Year and for the period from the beginning of the then current Fiscal Year to the end of such period to which such financial statements relate. "NET ASSET SALE PROCEEDS" means, with respect to any Asset Sale, an amount equal to: (i) Cash payments (including any Cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) received by Holdings or any of its Subsidiaries from such Asset Sale, MINUS (ii) any bona fide direct costs incurred in connection with such Asset Sale, including (a) income or gains taxes payable by the seller as a result of any gain recognized in connection with such Asset Sale, (b) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Loans) that is secured by a Lien on the stock or assets in question and that is required to be repaid under the terms thereof as a result of such Asset Sale and (c) a reasonable reserve for any indemnification payments (fixed or contingent) attributable to seller's indemnities and representations and warranties to purchaser in respect of such Asset Sale undertaken by Holdings or any of its Subsidiaries in connection with such Asset Sale. "NET INSURANCE/CONDEMNATION PROCEEDS" means an amount equal to: (i) any Cash payments or proceeds received by Holdings or any of its Subsidiaries (a) under any casualty insurance policy in respect of a covered loss thereunder or (b) as a result of the taking of any assets of Holdings or any of its Subsidiaries by any Person pursuant to the power of eminent domain, condemnation or otherwise, or pursuant to a sale of any such assets to a purchaser with such power under threat of such a taking, MINUS (ii) (a) any actual and reasonable costs incurred by Holdings or any of its Subsidiaries in connection with the adjustment or settlement of any claims of Holdings or such Subsidiary in respect thereof, and (b) any bona fide direct costs incurred in connection with any sale of such assets as referred to in clause (i)(b) of this definition, including income taxes payable as a result of any gain recognized in connection therewith. "NEW TRANCHE B TERM LOAN COMMITMENTS" as defined in Section 2.1(c). "NEW TRANCHE B TERM LOANS" as defined in Section 2.1(c). Page 28 "NEW TRANCHE B TERM LOAN LENDER" as defined in Section 2. 1 (c). "NON-US LENDER" as defined in Section 2.19(c). "NOTE" means a Tranche A Term Note, a Tranche B Term Note, a Revolving Loan Note or a Swing Line Note. "NOTICE" means a Funding Notice or a Conversion/Continuation Notice. "OBLIGATIONS" means all obligations of every nature of each Credit Party from time to time owed to the Agents (including former Agents), the Lenders or any of them or their respective Affiliates and Lender Counterparties, under any Credit Document or Hedge Agreement (including, without limitation, with respect to a Hedge Agreement, obligations owed thereunder to any person who was a Lender or an Affiliate of a Lender at the time such Hedge Agreement was entered into), whether for principal, interest (including interest which, but for the filing of a petition in bankruptcy with respect to such Credit Party, would have accrued on any Obligation, whether or not a claim is allowed against such Credit Party for such interest in the related bankruptcy proceeding), payments for early termination of Hedge Agreements, fees, expenses, indemnification or otherwise. "OBLIGEE GUARANTOR" as defined in Section 7.7. "OPTION EXCHANGE AGREEMENTS" means any of the Option Exchange Agreements, dated as of or prior to the Closing Date, entered into by and between Holdings and certain employees of Holdings and its Subsidiaries in connection with the Acquisition. "ORGANIZATIONAL DOCUMENTS" means (i) with respect to any corporation, its certificate or articles of incorporation, as amended, and its by-laws, as amended, (ii) with respect to any limited partnership, its certificate of limited partnership, as amended, and its partnership agreement, as amended, (iii) with respect to any general partnership, its partnership agreement, as amended, and (iv) with respect to any limited liability company, its articles of organization, as amended, and its operating agreement, as amended. In the event any term or condition of this Agreement or any other Credit Document requires any Organizational Document to be certified by a secretary of state or similar governmental official, the reference to any such "Organizational Document" shall only be to a document of a type customarily certified by such governmental official. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "PENSION PLAN" means any Employee Benefit Plan, other than a Multiemployer Plan, that is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA. "PERMITTED ACQUISITION" means any acquisition by Company or any of its Subsidiaries, whether by purchase, merger or otherwise, of all or substantially all of the assets of, 70% or more of the Capital Stock of, or a business line or unit or a division of, any Person; PROVIDED, Page 29 (i) immediately prior to, and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing or would result therefrom; (ii) all transactions in connection therewith shall be consummated, in all material respects, in accordance with all applicable laws and in conformity with all applicable Governmental Authorizations; (iii) in the case of the acquisition of Capital Stock, (i) at least 70% of the Capital Stock (except for any such Securities in the nature of directors' qualifying shares required pursuant to applicable law) acquired or otherwise issued by such Person or any newly formed Subsidiary of Company in connection with such acquisition shall be owned by Company or a Guarantor Subsidiary thereof, (ii) in the case of acquisitions where Company owns more than 70% but less than 100% of such Subsidiary, Company shall designate such Subsidiary as a Permitted Partially-Owned Subsidiary, and (iii) except in the case of a Permitted Partially-Owned Subsidiary, Company shall have taken, or caused to be taken, as of the date such Person becomes a Subsidiary of Company, each of the actions set forth in Sections 5. 10 and/or 5. 11, as applicable; (iv) Any Person or assets so acquired shall be located exclusively in the United States; (v) Holdings and its Subsidiaries shall be in compliance with the financial covenants set forth in Section 6.8 on a pro forma basis after giving effect to such acquisition as of the last day of the Fiscal Quarter most recently ended (as determined in accordance with Section 6.8(f)); (vi) Company shall have delivered to Administrative Agent (A) at least five Business Days prior to such proposed acquisition, a Compliance Certificate evidencing compliance with Section 6.8 as required under clause (v) above, together with all relevant financial information with respect to such acquired assets, including, without limitation, the aggregate consideration for such acquisition and any other information required to demonstrate compliance with Section 6.8; PROVIDED, HOWEVER, that Company shall not be required to comply with the provisions of this clause (vi) with respect to acquisitions unless the consideration of such acquisition is greater than $3,000,000; and (vii) any Person or assets or division as acquired in accordance herewith shall be in a business or lines of business the same as, related, complementary or ancillary to, the business or lines of business in which Company and/or its Subsidiaries are engaged as of the Closing Date. "PERMITTED INVESTORS" means any affiliated investment funds of GS Mezzanine Partners II, L.P., TCW Leveraged Income Trust, L.P., TCW Leveraged Income Trust II, L.P., TCW Leveraged Income Trust IV, L.P., TCW/Crescent Mezzanine Partners II, L.P., TCW/Crescent Mezzanine Trust II and The Northwestern Mutual Life Insurance Company. "PERMITTED LIENS" means each of the Liens permitted pursuant to Section 6.2. Page 30 "PERMITTED PARTIALLY-OWNED SUBSIDIARY" means (a) those Subsidiaries of Company listed on Schedule 1.2 existing on the Closing Date and (b) those Subsidiaries of Company acquired or created after the Closing Date and designated by Company as a Permitted Partially-Owned Subsidiary by written notice to the Administrative Agent, PROVIDED, that, with respect to Permitted Partially-Owned Subsidiaries acquired or created after the Closing Date, (i) Company owns at least 70% of the outstanding Capital Stock of such Subsidiary, (ii) the remaining Capital Stock of such Subsidiary is owned directly or indirectly, by one or more licensed veterinarians who are actively involved in the business of such Subsidiary, (iii) Company shall use its commercially reasonable efforts to cause such Subsidiary to become a Guarantor Subsidiary, (iv) if Company fails to obtain a Guaranty from such Subsidiary, then such Subsidiary shall not own any Material Real Estate Assets, and (v) Company shall use commercially reasonable efforts to cause such veterinarian to pledge his or her Capital Stock in such Permitted Partially-Owned Subsidiary in favor of the Collateral Agent for the benefit of the Secured Parties; PROVIDED, FURTHER, that (i) at no time shall the total portion of Consolidated Adjusted EBITDA contributed by all Subsidiaries constituting Permitted Partially-Owned Subsidiaries exceed 10% of Consolidated Adjusted EBITDA and (ii) at no time shall the portion of Consolidated Adjusted EBITDA contributed by all Permitted Partially Owned Subsidiaries acquired or created after the Closing Date which are not Guarantor Subsidiaries exceed 3% of Consolidated Adjusted EBITDA. "PERMITTED SELLER NOTES" means promissory notes containing subordination provisions in substantially the form of, or no less favorable to Lenders (in the reasonable judgment of Administrative Agent) than the subordination provisions contained in, Exhibit K annexed hereto, representing any Indebtedness of Holdings incurred in connection with any Permitted Acquisition payable to the seller in connection therewith, as such note may be amended, supplemented or otherwise modified from time to time to the extent permitted under subsection 6.16; PROVIDED that, no Permitted Seller Note shall (i) be guarantied by any Subsidiary of Holdings or secured by any property of Holdings, Company or any of its Subsidiaries, (ii) bear cash interest at a rate greater than 8.5% per annum; or, (iii) except in accordance with subsection 6.5, provide for any prepayment or repayment of all or any portion of the principal thereof prior to the date of the final scheduled installment of principal of the Loans; PROVIDED FURTHER, that in no event shall the aggregate scheduled cash payments of principal and interest on all outstanding Permitted Seller Notes exceed $4,000,000 in any Fiscal Year. "PERSON" means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, Joint Ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and Governmental Authorities. "PIK NOTES" as defined in the Holdings Senior Note Indenture. "PLEDGE AND SECURITY AGREEMENT" means the Pledge and Security Agreement to be executed by Company and each Guarantor, substantially in the form of Exhibit I, as it may be amended, supplemented or otherwise modified from time to time. Page 31 "PREFERRED STOCK" means the Junior Preferred Stock and the Senior Preferred Stock. "PRIME RATE" means the rate of interest per annum that Wells Fargo announces from time to time as its prime lending rate, as in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Wells Fargo or any other Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "PRINCIPAL OFFICE" means, for each of Administrative Agent and Swing Line Lender, such Person's "Principal Office" as set forth on Appendix B, or such other office as such Person may from time to time designate in writing to Company, Administrative Agent and each Lender. "PROJECTIONS" as defined in Section 4.8. "PRO RATA SHARE" means (i) with respect to all payments, computations and other matters relating to the Tranche A Term Loan of any Lender, the percentage obtained by dividing (a) the Tranche A Term Loan Exposure of that Lender by (b) the aggregate Tranche A Term Loan Exposure of all Lenders; (ii) with respect to all payments, computations and other matters relating to the Tranche B Term Loan of any Lender, the percentage obtained by dividing (a) the Tranche B Term Loan Exposure of that Lender by (b) the aggregate Tranche B Term Loan Exposure of all Lenders; and (iii) with respect to all payments, computations and other matters relating to the Revolving Commitment or Revolving Loans of any Lender or participations purchased therein by any Lender or any participations in any Swing Line Loans purchased by any Lender, the percentage obtained by dividing (a) the Revolving Exposure of that Lender by (b) the aggregate Revolving Exposure of all Lenders. For all other purposes with respect to each Lender, "Pro Rata Share" means the percentage obtained by dividing (A) an amount equal to the sum of the Tranche A Term Loan Exposure, the Tranche B Term Loan Exposure and the Revolving Exposure of that Lender, by (B) an amount equal to the sum of the aggregate Tranche A Term Loan Exposure, the aggregate Tranche B Term Loan Exposure and the aggregate Revolving Exposure of all Lenders. "REAL ESTATE ASSET" means, at any time of any interest (fee, leasehold or otherwise) then owned by any Credit Party in any real property. "RECORD DOCUMENT" means, with respect to any Leasehold Property, (i) the lease evidencing such Leasehold Property or a memorandum thereof, executed and acknowledged by the owner of the affected real property, as lessor, or (ii) if such Leasehold Property was acquired or subleased from the holder of a Recorded Leasehold Interest, the applicable assignment or sublease document, executed and acknowledged by such holder, in each case in form sufficient to give such constructive notice upon recordation and otherwise in form reasonably satisfactory to Collateral Agent. "RECORDED LEASEHOLD INTEREST" means a Leasehold Property with respect to which a Record Document has been recorded in all places necessary or desirable, in Page 32 Administrative Agent's reasonable judgment, to give constructive notice of such Leasehold Property to third-party purchasers and encumbrancers of the affected real property. "REFUNDED SWING LINE LOANS" as defined in Section 2.3(b)(iv). "REGISTER" as defined in Section 2.6(b). "REGULATION D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "RELATED AGREEMENTS" means, collectively, the Merger Agreement, the Holdings Senior Note Documents, the Senior Subordinated Note Documents, the Management Services Agreement, the Stockholders Agreement, the Employment Agreements, the Stock Purchase Agreement, the Securities Purchase Agreements, the Option Exchange Agreements, certain noncompetition agreements executed with certain members of senior management and disclosed to Syndication Agent and Collateral Agent, certain agreements to repurchase restricted Capital Stock of Holdings held by employees of Holdings and its Subsidiaries and disclosed to Syndication Agent and Collateral Agent, certain agreements to provide stay bonuses to certain employees of Holdings and its Subsidiaries and disclosed to Syndication Agent and Collateral Agent and certain agreements to make payments in connection with the termination of employment contracts and disclosed to Syndication Agent and Collateral Agent. "RELATED FUND" means, with respect to any Lender that is an investment fund, any other investment fund that invests in commercial loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "RELEASE" means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of any Hazardous Material into the indoor or outdoor environment (including the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Material), including the movement of any Hazardous Material through the air, soil, surface water or groundwater. "REPLACEMENT LENDER" as defined in Section 2.22. "REQUIRED PREPAYMENT DATE" as defined in Section 2.14(c). "REQUISITE CLASS LENDERS" means, at any time of determination, (i) for the Class of Lenders having Tranche A Term Loan Exposure, Lenders holding more than 50% of the aggregate Tranche A Term Loan Exposure of all Lenders; (ii) for the Class of Lenders having Tranche B Term Loan Exposure, Lenders holding more than 50% of the aggregate Tranche B Term Loan Exposure of all Lenders; and (iii) for the Class of Lenders having Revolving Exposure, Lenders having or holding more than 50% of the aggregate Revolving Exposure of all Lenders. "REQUISITE LENDERS" means one or more Lenders having or holding Tranche A Term Loan Exposure, Tranche B Term Loan Exposure and/or Revolving Exposure and representing more than 50% of the sum of (i) the aggregate Tranche A Term Loan Exposure of Page 33 all Lenders, (ii) the aggregate Tranche B Term Loan Exposure of all Lenders and (iii) the aggregate Revolving Exposure of all Lenders. "RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of Holdings or Company or any of its Subsidiaries now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to the holders of that class; (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of Holdings or Company or any of its Subsidiaries now or hereafter outstanding; (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of Holdings or Company or any of its Subsidiaries now or hereafter outstanding; (iv) management or similar fees payable to Sponsor or any of its Affiliates; and (v) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar payment with respect to, any Subordinated Indebtedness. "REVOLVING COMMITMENT" means the commitment of a Lender to make or otherwise fund any Revolving Loan and to acquire participations in Swing Line Loans hereunder and "Revolving Commitments" means such commitments of all Lenders in the aggregate. The amount of each Lender's Revolving Commitment, if any, is set forth on Appendix A-3 or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Revolving Loan Commitments as of the Closing Date is $50,000,000. "REVOLVING COMMITMENT PERIOD" means the period from the Closing Date to but excluding the Revolving Commitment Termination Date. "REVOLVING COMMITMENT TERMINATION DATE" means the earliest to occur of (i) September 30, 2000, if the Term Loans are not made on or before that date; (ii) the sixth (6th) anniversary of the Closing Date, (iii) the date the Revolving Commitments are permanently reduced to zero pursuant to Section 2.12(b) or 2.13, and (iv) the date of the termination of the Revolving Commitments pursuant to Section 8.1. "REVOLVING EXPOSURE" means, with respect to any Lender as of any date of determination, (i) prior to the termination of the Revolving Commitments, that Lender's Revolving Commitment; and (ii) after the termination of the Revolving Commitments, the sum of (a) the aggregate outstanding principal amount of the Revolving Loans of that Lender, (b) in the case of Swing Line Lender, the aggregate outstanding principal amount of all Swing Line Loans (net of any participations therein by other Lenders), and (e) the aggregate amount of all participations therein by that Lender in any outstanding Swing Line Loans. "REVOLVING LOAN" means a Loan made by a Lender to Company pursuant to Section 2.2(a). "REVOLVING LOAN NOTE" means a promissory note in the form of Exhibit B-3, as it may be amended, supplemented or otherwise modified from time to time. Page 34 "ROLLOVER EQUITY" means (i) the retention of Capital Stock of Holdings by Management Investors, (ii) the exchange of the spread value (excess of $15.00 per share over the exercise price) of options to acquire Capital Stock of Holdings by Management Investors for Capital Stock of Holdings at $15.00 per share, and (iii) the issuance to Management Investors of Capital Stock of Holdings at $15.00 per share in cash, notes or property of equivalent value in an aggregate amount with respect to (i), (ii) and (iii) above, of not less than $4,000,000. "S&P" means Standard & Poor's Ratings Group, a division of The McGraw Hill Corporation. "SECURED PARTIES" has the meaning assigned to that term in the Pledge and Security Agreement. "SECURITIES" means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, and any successor statute. "SECURITIES PURCHASE AGREEMENTS" means any of the Securities Purchase Agreements, dated as of or prior to the Closing Date, entered into by and between Holdings and its Management Investors. "SENIOR LEVERAGE RATIO" means the ratio as of the last day of any Fiscal Quarter of (i) Consolidated Total Senior Debt as of such day to (ii) Consolidated Adjusted EBITDA for the four-Fiscal Quarter ending on such date (as determined in accordance with Section 6.8(f)). "SENIOR PREFERRED STOCK" means the shares of senior preferred stock, par value $.01 per share of Holdings issued to GS Mezzanine Partners II, L.P. and Permitted Investors pursuant to the terms of the Holdings Purchase Agreement. "SENIOR SUBORDINATED NOTE DOCUMENTS" means the Senior Subordinated Notes, the Senior Subordinated Note Indenture, the Company Purchase Agreement, the Senior Subordinated Note Registration Rights Agreement, and each other document executed in connection with the Senior Subordinated Notes, as such document may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.16. "SENIOR SUBORDINATED NOTE INDENTURE" means that certain Indenture dated as of September 20, 2000 by and among Company, the Subsidiaries of Company party thereto, and Chase Manhattan Bank and Trust Company, National Association, as trustee, pursuant to which the Senior Subordinated Notes are issued, as in effect on the Closing Date and as such indenture Page 35 may hereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.16. "SENIOR SUBORDINATED NOTE REGISTRATION RIGHTS AGREEMENT" means the Exchange and Registration Rights Agreement dated as of September 20, 2000 among Company, GS Mezzanine Partners II, L.P. and Permitted Investors, as in effect on the Closing Date and as such agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.16. "SENIOR SUBORDINATED NOTES" means the $20,000,000 in aggregate principal amount of 13.5% subordinated notes due 2010 issued by Company pursuant to the Senior Subordinated Note Indenture (including any Senior Subordinated Notes issued by Company pursuant to the Senior Subordinated Note Indenture, the Company Purchase Agreement or the Senior Subordinated Note Registration Rights Agreement (the "SENIOR SUBORDINATED REPLACEMENT NOTES") in exchange for, and on substantially identical terms as, the Senior Subordinated Notes; PROVIDED, that, the Senior Subordinated Replacement Notes may have changes to the relative ranking as among such Senior Replacement Notes, the interest rate or yield so long as the principal amount and cash interest and premium expense to Company shall not exceed such principal amount and cash interest and premium expense of the original Senior Subordinated Notes prior to such exchange and so long as the aggregate amounts paid, and the dates of payment thereof, with respect to the Senior Subordinated Replacement Notes shall not be different from the aggregate amounts paid and the dates of payment of the original Senior Subordinated Notes prior to such exchange), as such notes may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.16. "SOLVENCY CERTIFICATE" means a Solvency Certificate of the chief financial officer of Holdings substantially in the form of Exhibit G-2. "SOLVENT" means, with respect to any Person, that as of the date of determination both (i) (a) the sum of such Person's debt (including contingent liabilities) does not exceed all of its property, at a fair valuation; (b) the present fair saleable value of the property of such Person is not less than the amount that will be required to pay the probable liabilities on such Person's then existing debts as they become absolute and matured; (c) such Person's capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction; and (d) such Person does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due; and (ii) such Person is "solvent" within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standard No.5). "SPONSOR" means Green Equity Investors III, L.P., a Delaware limited partnership. Page 36 "STOCK PURCHASE AGREEMENT" means the Stock Purchase Agreement dated as of March 30, 2000, by and between Robert L. Antin and Sponsor, and as such agreement may be amended, restated or otherwise modified from time to time. "STOCKHOLDERS AGREEMENT" means the Stockholders Agreement dated as of the date hereof by and among Holdings, Sponsor, Co-Investors, GS Mezzanine Partners II, L.P., Permitted Investors and Management Investors, and as such agreement may be amended, restated or otherwise modified from time to time. "SUBJECT TRANSACTION" as defined in Section 6.8(f). "SUBORDINATED INDEBTEDNESS" means (i) Indebtedness of Company and its Subsidiaries under the Senior Subordinated Note Documents and (ii) Indebtedness outstanding under Permitted Seller Notes. "SUBSIDIARY" means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, PROVIDED in determining the percentage of ownership interests of any Person controlled by another Person, no ownership interest in the nature of a "qualifying share" of the former Person shall be deemed to be outstanding. "SWING LINE LENDER" means Wells Fargo in its capacity as Swing Line Lender hereunder, together with its permitted successors and assigns in such capacity. "SWING LINE LOAN" means a Loan made by Swing Line Lender to Company pursuant to Section 2.3. "SWING LINE NOTE" means a promissory note in the form of Exhibit B-4, as it may be amended, supplemented or otherwise modified from time to time. "SWING LINE SUBLIMIT" means the lesser of (i) $5,000,000, and (ii) the aggregate unused amount of Revolving Commitments then in effect. "SYNDICATION AGENT" as defined in the preamble hereto. "TAX" means any present or future tax, levy, impost, duty, assessment, charge, fee, deduction or withholding of any nature now or hereafter imposed, levied, collected, withheld or assessed by any taxing authority; PROVIDED, "Tax on the overall net income" of a Person shall be construed as a reference to a tax imposed by the jurisdiction in which that Person is organized or in which that Person's applicable principal office (and/or, in the case of a Lender, its lending office) is located or in which that Person (and/or, in the case of a Lender, its lending office) is deemed to be doing business on or measured by all or part of the net income, profits or gains (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or Page 37 to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in the case of a Lender, its applicable lending office). "TERM LOAN" means a Tranche A Term Loan and/or a Tranche B Term Loan. "TERM LOAN COMMITMENT" means the Tranche A Term Loan Commitment or the Tranche B Term Loan Commitment of a Lender, and "TERM LOAN Commitments" means such commitments of all Lenders in the aggregate. "TERM LOAN MATURITY DATE" means the Tranche A Term Loan Maturity Date or the Tranche B Term Loan Maturity Date. "TERMINATED LENDER" as defined in Section 2.22. "TOTAL UTILIZATION OF REVOLVING COMMITMENTS" means, as at any date of determination, the sum of (i) the aggregate principal amount of all outstanding Revolving Loans (other than Revolving Loans made for the purpose of repaying any Refunded Swing Line Loans, but not yet so applied), and (ii) the aggregate principal amount of all outstanding Swing Line Loans. "TRANCHE A TERM LOAN" means a Tranche A Term Loan made by a Lender to Company pursuant to Section 2.1(a)(i). "TRANCHE A TERM LOAN COMMITMENT" means the commitment of a Lender to make or otherwise fund a Tranche A Term Loan and "TRANCHE A TERM LOAN COMMITMENTS" means such commitments of all Lenders in the aggregate. The amount of each Lender's Tranche A Term Loan Commitment, if any, is set forth on Appendix A-1 or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Tranche A Term Loan Commitments as of the Closing Date is $50,000,000. "TRANCHE A TERM LOAN EXPOSURE" means, with respect to any Lender, as of any date of determination, the outstanding principal amount of the Tranche A Term Loans of such Lender, PROVIDED, at anytime prior to the making of the Tranche A Term Loans, the Tranche A Term Loan Exposure of any Lender shall be equal to such Lender's Tranche A Term Loan Commitment. "TRANCHE A TERM LOAN MATURITY DATE" means the earlier of (i) the sixth (6th) anniversary of the Closing Date, and (ii) the date that all Tranche A Term Loans shall become due and payable in full hereunder, whether by acceleration or otherwise. "TRANCHE A TERM LOAN NOTE" means a promissory note in the form of Exhibit B-1, as it may be amended, supplemented or otherwise modified from time to time. "TRANCHE B TERM LOAN" means a Tranche B Term Loan made by a Lender to Company pursuant to Section 2.1(a)(ii) together with a New Tranche B Term Loan made by a Lender to Company pursuant to Section 2.1(c). Page 38 "TRANCHE B TERM LOAN COMMITMENT" means the commitment of a Lender to make or otherwise fund a Tranche B Term Loan and "TRANCHE B TERM LOAN COMMITMENTS" means such commitments of all Lenders in the aggregate. The amount of each Lender's Tranche B Term Loan Commitment, if any, is set forth on Appendix A-2 or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Tranche B Term Loan Commitments as of the Closing Date is $200,000,000. "TRANCHE B TERM LOAN EXPOSURE" means, with respect to any Lender, as of any date of determination, the outstanding principal amount of the Tranche B Term Loans of such Lender; PROVIDED, at any time prior to the making of the Tranche B Term Loans, the Tranche B Term Loan Exposure of any Lender shall be equal to such Lender's Tranche B Term Loan Commitment. "TRANCHE B TERM LOAN MATURITY DATE" means the earlier of (i) the eighth (8th) anniversary of the Closing Date, and (ii) the date that all Tranche B Term Loans shall become due and payable in full hereunder, whether by acceleration or otherwise. "TRANCHE B TERM LOAN NOTE" means a promissory note in the form of Exhibit B-2, as it may be amended, supplemented or otherwise modified from time to time. "TRANSACTION COSTS" means the fees, costs and expenses payable by Holdings, Company or any of Company's Subsidiaries in connection with the closing of the transactions contemplated by the Credit Documents and the Related Agreements, including, without limitation, (i) any charge incurred by Holdings and/or Company arising out of the repurchase at $15 per share on the Closing Date of restricted Capital Stock of Holdings held by certain employees of Holdings and its Subsidiaries; PROVIDED, that payment of an amount not to exceed $2,000,000 of the aggregate purchase price for such restricted Capital Stock may be deferred for not more than sixteen (16) months after the Closing Date, (ii) any financing, legal, accounting, investment banking or other professional fees and expenses incurred in connection with the Acquisition, including the funding of the Acquisition Financing Requirements; PROVIDED, that such fees in the aggregate do not exceed an amount disclosed to and reasonably acceptable to Syndication Agent on or before the Closing Date, (iii) any other costs and expenses incurred by Holdings and/or Company and its Subsidiaries in connection with the Acquisition arising pursuant to certain noncompetition agreements executed with members of senior management of Holdings, in connection with the termination of certain employment contracts of Holdings and its Subsidiaries and in connection with stay bonuses provided to certain employees of Holdings and its Subsidiaries in an aggregate amount not to exceed $19,300,000, PROVIDED, that payment of an amount not to exceed $5,000,000 of such costs and expenses may be deferred for not more than sixteen (16) months after the Closing Date and (iv) premium payments payable to certain note holders of Holdings in an aggregate amount not to exceed $1,700,000. "TYPE OF LOAN" means (i) with respect to either Term Loans or Revolving Loans, a Base Rate Loan or a Eurodollar Rate Loan, and (ii) with respect to Swing Line Loans, a Base Rate Loan. Page 39 "UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction. "UCC QUESTIONNAIRE" means a certificate in form satisfactory to the Collateral Agent that provides information with respect to the personal or mixed property of each Credit Party. "UNADJUSTED EURODOLLAR RATE COMPONENT" means that component of the interest costs to Company in respect of a Eurodollar Rate Loan that is based upon the rate obtained pursuant to clause (i) of the definition of Adjusted Eurodollar Rate. "WAIVABLE MANDATORY PREPAYMENT" as defined in Section 2.15(c). "WARRANT AGREEMENT" means the Warrant Agreement dated as of September 20, 2000 among Holdings, GS Mezzanine Partners II, L.P. and Permitted Investors, as in effect on the Closing Date and as such agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.15. "WARRANTS" means the warrants to acquire 5.75% of the common equity of Holdings issued by Holdings to GS Mezzanine Partners II, L.P. and Permitted Investors on the Closing Date and pursuant to the Warrant Agreement and the Holdings Purchase Agreement, as such warrants are in effect on the dates of their respective issuances and as such warrants may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.15. 1.2. ACCOUNTING TERMS. Except as otherwise expressly provided herein, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Financial statements and other information required to be delivered by Holdings to Lenders pursuant to Section 5.1(a), 5.1(b) and 5.1(c) shall be prepared in accordance with GAAP as in effect at the time of such preparation (and delivered together with the reconciliation statements provided for in Section 5.1(e), if applicable). Subject to the foregoing, calculations in connection with the definitions, covenants and other provisions hereof shall utilize accounting principles and policies in conformity with those used to prepare the Historical Financial statements. 1.3. INTERPRETATION, ETC. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. References herein to any Section, Appendix, Schedule or Exhibit shall be to a Section, an Appendix, a Schedule or an Exhibit, as the case may be, hereof unless otherwise specifically provided. The use herein of the word "include" or "including", when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter. Page 40 SECTION 2. LOANS 2.1. TERM LOANS. (a) LOAN COMMITMENTS. Subject to the terms and conditions hereof, (i) each Lender severally agrees to make, on the Closing Date, a Tranche A Term Loan to Company in an amount equal to such Lender's Tranche A Term Loan Commitment; and (ii) each Lender severally agrees to make, on the Closing Date, a Tranche B Term Loan to Company in an amount equal to such Lender's Tranche B Term Loan Commitment. Company may make only one borrowing under each of the Tranche A Term Loan Commitment and Tranche B Term Loan Commitment which shall be on the Closing Date. Any amount borrowed under this Section 2.1(a) and subsequently repaid or prepaid may not be reborrowed. Subject to Sections 2.12(a) and 2.13, all amounts owed hereunder with respect to the Tranche A Term Loans and the Tranche B Term Loans shall be paid in full no later than the Tranche A Term Loan Maturity Date and the Tranche B Term Loan Maturity Date, respectively. Each Lender's Tranche A Term Loan Commitment and Tranche B Term Loan Commitment shall terminate immediately and without further action on the Closing Date after giving effect to the funding of such Lender's Tranche A Term Loan Commitment and Tranche B Term Loan Commitment on such date. (b) BORROWING MECHANICS FOR TERM LOANS. (i) Company shall deliver to Administrative Agent a fully executed and delivered Closing Date Certificate (which shall be deemed to be a Funding Notice with respect to the Term Loans for all purposes hereof) no later than three days prior to the Closing Date. Promptly upon receipt by Administrative Agent of such Certificate, Administrative Agent shall notify each Lender of the proposed borrowing. (ii) Each Lender shall make its Tranche A Term Loan and/or Tranche B Term Loan, as the case may be, available to Administrative Agent not later than 12:00 p.m. (New York City time) on the Closing Date, by wire transfer of same day funds in Dollars, at Administrative Agent's Principal Office. Upon satisfaction or waiver of the conditions precedent specified herein, Administrative Agent shall make the proceeds of the Term Loans available to Company on the Closing Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Loans received by Administrative Agent from Lenders to be credited to the account of Company at Administrative Agent's Principal Office or to such other account as may be designated in writing to Administrative Agent by Company. (c) ADDITIONAL TRANCHE B TERM LOANS. Company may by written notice to Sole Lead Arranger elect to request an increase to the existing Tranche B Term Loan Commitments ("NEW TRANCHE B TERM LOAN COMMITMENTS") by an amount not in excess of $25,000,000 in the aggregate. Each such notice shall specify (A) the date (each, an "INCREASED AMOUNT DATE") on which Company proposes that the New Tranche B Term Loan Commitments Page 41 shall be effective and that Loans be made pursuant to the New Tranche B Term Loan Commitments ("NEW TRANCHE B TERM LOANS"), which shall be a date not less than 10 Business Days after the date on which such notice is delivered to Administrative Agent and (B) the identity of each Lender or other Person (each, a "NEW TRANCHE B TERM LOAN LENDER") to whom Company proposes any portion of such New Tranche B Term Loan Commitments shall be allocated and the amounts of such allocations; PROVIDED, that such New Tranche B Term Loan Commitments shall not be made available to Company until after the Agents shall have declared that the syndication of the Commitments has been successfully completed; PROVIDED, FURTHER that any Lender approached to provide all or a portion of the New Tranche B Term Loan Commitments may elect or decline, in its sole discretion, to provide a New Tranche B Term Loan Commitment. Company hereby appoints Sole Lead Arranger as sole syndication agent with respect to the syndication of the New Tranche B Term Loans. Such New Tranche B Term Loan Commitments shall become effective and any such New Tranche B Term Loans shall be made as of such Increased Amount Date; PROVIDED that (1) no Default or Event of Default shall exist on such Increased Amount Date before or after giving effect to such New Tranche B Term Loan Commitments; (2) both before and after giving effect to the making of any New Tranche B Term Loans each of the conditions set forth in Section 3.2 shall be satisfied; (3) each increase in the New Tranche B Term Loan Commitments shall be effected pursuant to one or more joinder agreements in form and substance satisfactory to Agents, executed and delivered to Administrative Agent, and each shall be recorded in the Register; (4) Company shall make any payments required pursuant to Section 2.10(c) in connection with the New Tranche B Term Loan Commitments, and (5) Company shall deliver or cause to be delivered any legal opinions or other documents reasonably requested by Administrative Agent in connection with any such transaction. On any Increased Amount Date on which any New Tranche B Term Loan Commitments are effective, subject to the satisfaction of the foregoing terms and conditions, each New Tranche B Term Loan Lender shall make a New Tranche B Term Loan to Company in an amount equal to its New Tranche B Term Loan Commitment. The Administrative Agent shall notify the Lenders promptly upon receipt of Company's notice of each Increased Amount Date and in respect thereof the New Tranche B Term Loan Commitments. The terms and provisions of the New Tranche B Term Loans and New Tranche B Term Loan Commitments shall be identical to the Tranche B Term Loans in the case of Tranche B Term Loans. 2.2. REVOLVING LOANS. (a) REVOLVING COMMITMENTS. During the Revolving Commitment Period, subject to the terms and conditions hereof, each Lender severally agrees to make Revolving Loans to Company in the aggregate amount up to but not exceeding such Lender's Revolving Commitment; PROVIDED, after giving effect to the making of any Revolving Loans in no event shall the Total Utilization of Revolving Commitments exceed the Revolving Commitments then in effect. Amounts borrowed pursuant to this Section 2.2(a) may be repaid and reborrowed during the Revolving Commitment Period. Each Lender's Revolving Commitment shall expire on the Revolving Commitment Termination Date and all Revolving Loans and all other amounts owed hereunder with respect to the Revolving Loans and the Revolving Commitments shall be paid in full no later than such date. (b) BORROWING MECHANICS FOR REVOLVING LOANS. Page 42 (i) Revolving Loans that are Base Rate Loans shall be made in an aggregate minimum amount of $1,000,000 and integral multiples of $500,000 in excess of that amount, and Revolving Loans that are Eurodollar Rate Loans shall be in an aggregate minimum amount of $2,000,000 and integral multiples of $1,000,000 in excess of that amount. (ii) Whenever Company desires that Lenders make Revolving Loans, Company shall deliver to Administrative Agent a fully executed and delivered Funding Notice no later than 1:00 p.m. (New York City time) at least three Business Days in advance of the proposed Credit Date in the case of a Eurodollar Rate Loan, and at least one Business Day in advance of the proposed Credit Date in the case of a Revolving Loan that is a Base Rate Loan. Except as otherwise provided herein, a Funding Notice for a Revolving Loan that is a Eurodollar Rate Loan shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to make a borrowing in accordance therewith. (iii) Notice of receipt of each Funding Notice in respect of Revolving Loans, together with the amount of each Lender's Pro Rata Share thereof, if any, together with the applicable interest rate, shall be provided by Administrative Agent to each applicable Lender by telefacsimile with reasonable promptness, but (provided Administrative Agent shall have received such notice by 1:00 p.m. (New York City time)) not later than 3:00 p.m. (New York City time) on the same day as Administrative Agent's receipt of such Notice from Company. (iv) Each Lender shall make the amount of its Revolving Loan available to Administrative Agent not later than 12:00 p.m. (New York City time) on the applicable Credit Date by wire transfer of same day funds in Dollars, at the Administrative Agent's Principal Office. Except as provided herein, upon satisfaction or waiver of the conditions precedent specified herein, Administrative Agent shall make the proceeds of such Revolving Loans available to Company on the applicable Credit Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Revolving Loans received by Administrative Agent from Lenders to be credited to the account of Company at the Administrative Agent's Principal Office or such other account as may be designated in writing to Administrative Agent by Company. 2.3. SWING LINE LOANS. (a) SWING LINE LOANS COMMITMENTS. During the Revolving Commitment Period, subject to the terms and conditions hereof, Swing Line Lender hereby agrees to make Swing Line Loans to Company in the aggregate amount up to but not exceeding the Swing Line Sublimit; PROVIDED, after giving effect to the making of any Swing Line Loan, in no event shall the Total Utilization of Revolving Commitments exceed the Revolving Commitments then in effect. Amounts borrowed pursuant to this Section 2.3 may be repaid and reborrowed during the Revolving Commitment Period. Swing Line Lender's Revolving Commitment shall expire on the Revolving Commitment Termination Date and all Swing Line Loans and all other amounts owed hereunder with respect to the Swing Line Loans and the Revolving Commitments shall be paid in full no later than such date. Page 43 (b) BORROWING MECHANICS FOR SWING LINE LOANS. (i) Swing Line Loans shall be made in an aggregate minimum amount of $100,000 and integral multiples of $100,000 in excess of that amount. (ii) Whenever Company desires that Swing Line Lender make a Swing Line Loan, Company shall deliver to Administrative Agent a Funding Notice no later than 1:00 p.m. (New York City time) on the proposed Credit Date. (iii) Swing Line Lender shall make the amount of its Swing Line Loan available to Administrative Agent not later than 3:00 p.m. (New York City time) on the applicable Credit Date by wire transfer of same day funds in Dollars, at the Administrative Agent's Principal Office. Except as provided herein, upon satisfaction or waiver of the conditions precedent specified herein, Administrative Agent shall make the proceeds of such Swing Line Loans available to Company on the applicable Credit Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Swing Line Loans received by Administrative Agent from Swing Line Lender to be credited to the account of Company at the Administrative Agent's Principal Office, or to such other account as may be designated in writing to Administrative Agent by Company. (iv) With respect to any Swing Line Loans which have not been voluntarily prepaid by Company pursuant to Section 2.12, Swing Line Lender may at any time in its sole and absolute discretion, deliver to Administrative Agent (with a copy to Company), no later than 11:00 a.m. (New York City time) at least one (1) Business Day in advance of the proposed Credit Date, a notice (which shall be deemed to be a Funding Notice given by Company) requesting that each Lender holding a Revolving Commitment make Revolving Loans that are Base Rate Loans to Company on such Credit Date in an amount equal to the amount of such Swing Line Loans (the "REFUNDED SWING LINE LOANS") outstanding on the date such notice is given which the Swing Line Lender requests Lenders to prepay. Notwithstanding anything contained in this Agreement to the contrary, (1) the proceeds of such Revolving Loans made by the Lenders other than Swing Line Lender shall be immediately delivered by the Administrative Agent to Swing Line Lender (and not to Company) and applied to repay a corresponding portion of the Refunded Swing Line Loans and (2) on the day such Revolving Loans are made, Swing Line Lender's Pro Rata Share of the Refunded Swing Line Loans shall be deemed to be paid with the proceeds of a Revolving Loan made by Swing Line Lender to Company, and such portion of the Swing Line Loans deemed to be so paid shall no longer be outstanding as Swing Line Loans and shall no longer be due under the Swing Line Note of Swing Line Lender but shall instead constitute part of Swing Line Lender's outstanding Revolving Loans to Company and shall be due under the Revolving Loan Note issued by Company to Swing Line Lender. Company hereby authorizes Administrative Agent and Swing Line Lender to charge Company's accounts with Administrative Agent and Swing Line Lender (up to the amount available in each such account) in order to immediately pay Swing Line Lender the amount of the Refunded Swing Line Loans to the extent the proceeds of such Revolving Loans made by Lenders, including the Revolving Loan deemed to be made by the Swing Line Lender, are not sufficient to repay in full the Refunded Swing Line Loans. If any portion of any such amount paid (or deemed to be paid) to Swing Line Lender should be recovered by or on behalf of Company from Swing Line Lender in bankruptcy, by assignment Page 44 for the benefit of creditors or otherwise, the loss of the amount so recovered shall be ratably shared among all Lenders in the manner contemplated by Section 2.16. (v) If for any reason Revolving Loans are not made pursuant to Section 2.3(b)(iv) in an amount sufficient to repay any amounts owed to Swing Line Lender in respect of any outstanding Swing Line Loans on or before the third Business Day after demand for payment thereof by Swing Line Lender, each Lender holding a Revolving Commitment shall be deemed to, and hereby agrees to, have purchased a participation in such outstanding Swing Line Loans, and in an amount equal to its Pro Rata Share of the applicable unpaid amount together with accrued interest thereon. Upon one (1) Business Day's notice from Swing Line Lender, each Lender holding a Revolving Commitment shall deliver to Swing Line Lender an amount equal to its respective participation in the applicable unpaid amount in same day funds at the Principal Office of Swing Line Lender. In order to evidence such participation each Lender holding a Revolving Commitment agrees to enter into a participation agreement at the request of Swing Line Lender in form and substance reasonably satisfactory to Swing Line Lender. In the event any Lender holding a Revolving Commitment fails to make available to Swing Line Lender the amount of such Lender's participation as provided in this paragraph, Swing Line Lender shall be entitled to recover such amount on demand from such Lender together with interest thereon for three Business Days at the rate customarily used by Swing Line Lender for the correction of errors among banks and thereafter at the Base Rate, as applicable. (vi) Notwithstanding anything contained herein to the contrary, (1) each Lender's obligation to make Revolving Loans for the purpose of repaying any Refunded Swing Line Loans pursuant to the second preceding paragraph and each Lender's obligation to purchase a participation in any unpaid Swing Line Loans pursuant to the immediately preceding paragraph shall be absolute and unconditional and shall not be affected by any circumstance, including without limitation (A) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against Swing Line Lender, any Credit Party or any other Person for any reason whatsoever; (B) the occurrence or continuation of a Default or Event of Default; (C) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of any Credit Party; (D) any breach of this Agreement or any other Credit Document by any party thereto; or (E) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; PROVIDED that such obligations of each Lender are subject to the condition that Swing Line Lender believed in good faith that all conditions under Section 3.2 to the making of the applicable Refunded Swing Line Loans or other unpaid Swing Line Loans, were satisfied at the time such Refunded Swing Line Loans or unpaid Swing Line Loans were made, or the satisfaction of any such condition not satisfied had been waived by Requisite Lenders prior to or at the time such Refunded Swing Line Loans or other unpaid Swing Line Loans were made; and (2) Swing Line Lender shall not be obligated to make any Swing Line Loans (A) if it has elected not to do so after the occurrence and during the continuation of a Default or Event of Default or (3) at a time when a Funding Default exists unless Swing Line Lender has entered into arrangements satisfactory to it and Company to eliminate Swing Line Lenders risk with respect to the Defaulting Lender's participation in such Swing Line Loan, including by cash collateralizing such Defaulting Lender's Pro Rata Share of the outstanding Swing Line Loans. Page 45 2.4. PRO RATA SHARES; AVAILABILITY OF FUNDS. (a) PRO RATA SHARES. All Loans shall be made, and all participations purchased, by Lenders simultaneously and proportionately to their respective Pro Rata Shares, it being understood that no Lender shall be responsible for any default by any other Lender in such other Lender's obligation to make a Loan requested hereunder or purchase a participation required hereby nor shall any Term Loan Commitment or any Revolving Commitment of any Lender be increased or decreased as a result of a default by any other Lender in such other Lender's obligation to make a Loan requested hereunder or purchase a participation required hereby. (b) AVAILABILITY OF FUNDS. Unless Administrative Agent shall have been notified by any Lender prior to the applicable Credit Date that such Lender does not intend to make available to Administrative Agent the amount of such Lender's Loan requested on such Credit Date, Administrative Agent may assume that such Lender has made such amount available to Administrative Agent on such Credit Date and Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to Company a corresponding amount on such Credit Date. If such corresponding amount is not in fact made available to Administrative Agent by such Lender, Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from such Credit Date until the date such amount is paid to Administrative Agent, at the customary rate set by Administrative Agent for the correction of errors among banks for three Business Days and thereafter at the Base Rate. If such Lender does not pay such corresponding amount forthwith upon Administrative Agent's demand therefor, Administrative Agent shall promptly notify Company and Company shall immediately pay such corresponding amount to Administrative Agent together with interest thereon, for each day from such Credit Date until the date such amount is paid to Administrative Agent, at the rate payable hereunder for Base Rate Loans for such Class of Loans. Nothing in this Section 2.4(b) shall be deemed to relieve any Lender from its obligation to fulfill its Term Loan Commitments and Revolving Commitments hereunder or to prejudice any rights that Company may have against any Lender as a result of any default by such Lender hereunder. 2.5. USE OF PROCEEDS. The proceeds of the Term Loans and the Revolving Loans made on the Closing Date shall be applied by Company to fund, a portion of the Acquisition Financing Requirements, to repay the Existing Indebtedness of Holdings and its Subsidiaries (other than the Indebtedness listed on Schedule 6.1 hereto) and to pay related fees and expenses; PROVIDED, HOWEVER, in the case of Revolving Loans, such borrowing shall not exceed $1,000,000 in aggregate principal amount, and after giving effect to such borrowing of Revolving Loans, the Senior Leverage Ratio determined on a pro forma basis, for the Fiscal Quarter period most recently ending shall not exceed 3.90:1.00. The proceeds of the Revolving Loans and Swing Line Loans made after the Closing Date shall be applied by Company for working capital and general corporate purposes of Company and its Subsidiaries, including Permitted Acquisitions. No portion of the proceeds of any Credit Extension shall be used in any manner that causes or might cause such Credit Extension or the application of such proceeds to violate Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation thereof or to violate the Exchange Act. Page 46 2.6. EVIDENCE OF DEBT; REGISTER; LENDERS' BOOKS AND RECORDS; NOTES. (a) LENDERS' EVIDENCE OF DEBT. Each Lender shall maintain on its internal records an account or accounts evidencing the Indebtedness of Company to such Lender, including the amounts of the Loans made by it and each repayment and prepayment in respect thereof. Any such recordation shall be prima facie evidence thereof; PROVIDED, failure to make any such recordation, or any error in such recordation, shall not affect any Lender's Revolving Commitments or Company's Obligations in respect of any applicable Loans; and PROVIDED FURTHER, in the event of any inconsistency between the Register and any Lender's records, the reconditions in the Register shall govern. (b) REGISTER. Administrative Agent shall maintain at its Principal Office a register for the recordation of the names and addresses of Lenders and the Revolving Commitments and Loans of each Lender from time to time (the "REGISTER"). The Register shall be available for inspection by Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. Administrative Agent shall record in the Register the Revolving Commitments and the Loans, and each repayment or prepayment in respect of the principal amount of the Loans, and any such recordation shall be prima facie evidence thereof; PROVIDED, failure to make any such recordation, or any error in such recordation, shall not affect any Lender's Revolving Commitments or Company's Obligations in respect of any Loan. Company hereby designates Wells Fargo to serve as Company's agent solely for purposes of maintaining the Register as provided in this Section 2.6, and Company hereby agrees that, to the extent Wells Fargo serves in such capacity, Wells Fargo and its officers, directors, employees, agents and affiliates shall constitute "Indemnitees." (c) NOTES. If so requested by any Lender by written notice to Company (with a copy to Administrative Agent) at least two Business Days prior to the Closing Date, or at any time thereafter, Company shall execute and deliver to such Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of such Lender pursuant to Section 10.6) on the Closing Date (or, if such notice is delivered after the Closing Date, promptly after Company's receipt of such notice) a Note or Notes to evidence such Lender's Tranche A Term Loan, Tranche B Term Loan, Revolving Loan or Swing Line Loan, as the case may be. 2.7. INTEREST ON LOANS. (a) Except as otherwise set forth herein, each Class of Loan shall bear interest on the unpaid principal amount thereof from the date made through repayment (whether by acceleration or otherwise) thereof as follows: (i) in the case of Tranche A Term Loans and Revolving Loans: (1) if a Base Rate Loan, at the Base Rate PLUS the Applicable Margin; or (2) if a Eurodollar Rate Loan, at the Adjusted Eurodollar Rate PLUS the Applicable Margin; Page 47 (ii) in the case of Swing Line Loans, at the Base Rate plus the Applicable Margin; and (iii) in the case of Tranche B Term Loans: (1) if a Base Rate Loan, at the Base Rate PLUS 2.75% per annum; or (2) if a Eurodollar Rate Loan, at the Adjusted Eurodollar Rate PLUS 3.75% per annum. (b) The basis for determining the rate of interest with respect to any Loan (except a Swing Line Loan which can be made and maintained as Base Rate Loans only), and the Interest Period with respect to any Eurodollar Rate Loan, shall be selected by Company and notified to Administrative Agent and Lenders pursuant to the applicable Funding Notice or Conversion/Continuation Notice, as the case may be. If on any day a Loan is outstanding with respect to which a Funding Notice or Conversion/Continuation Notice has not been delivered to Administrative Agent in accordance with the terms hereof specifying the applicable basis for determining the rate of interest, then for that day such Loan shall be a Base Rate Loan. (c) In connection with Eurodollar Rate Loans there shall be no more than twelve (12) Interest Periods outstanding at any time. In the event Company fails to specify between a Base Rate Loan or a Eurodollar Rate Loan in the applicable Funding Notice or Conversion/Continuation Notice, such Loan (if outstanding as a Eurodollar Rate Loan) shall be automatically converted into a Base Rate Loan on the last day of the then-current Interest Period for such Loan (or if outstanding as a Base Rate Loan will remain as, or (if not then outstanding) shall be made as, a Base Rate Loan). In the event Company fails to specify an Interest Period for any Eurodollar Rate Loan in the applicable Funding Notice or Conversion/Continuation Notice, Company shall be deemed to have selected an Interest Period of one month. As soon as practicable after 10:00 a.m. (New York City time) on each Interest Rate Determination Date, Administrative Agent shall determine (which determination shall be prima facie evidence thereof) the interest rate that shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Company and each Lender. (d) Interest payable pursuant to Section 2.7(a) shall be computed (i) in the case of Base Rate Loans on the basis of a 365-day or 366-day year, as the case may be, and (ii) in the case of Eurodollar Rate Loans, on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of such Loan or the first day of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted from a Eurodollar Rate Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate Loan, as the case may be, shall be included, and the date of payment of such Loan or the expiration date of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted to a Eurodollar Rate Loan, the date of conversion of such Base Rate Loan to such Eurodollar Rate Loan, as the case may be, shall be excluded; PROVIDED, if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Loan. Page 48 (e) Except as otherwise set forth herein, interest on each Loan shall be payable in arrears on and to (i) each Interest Payment Date applicable to that Loan; (ii) any prepayment of that Loan, whether voluntary or mandatory, to the extent accrued on the amount being prepaid; and (iii) at maturity, including final maturity; PROVIDED, however, with respect to any voluntary prepayment of a Revolving Loan that is a Base Rate Loan, accrued interest shall instead be payable on the applicable Interest Payment Date. 2.8. CONVERSION/CONTINUATION. (a) Subject to Section 2.17 and so long as no Default or Event of Default shall have occurred and then be continuing, Company shall have the option: (i) to convert at any time all or any part of any Term Loan or Revolving Loan equal to $ 1,000,000 and integral multiples of $500,000 in excess of that amount from one Type of Loan to another Type of Loan; PROVIDED, a Eurodollar Rate Loan may only be converted on the expiration of the Interest Period applicable to such Eurodollar Rate Loan unless Company shall pay all amounts due under Section 2.17 in connection with any such conversion; or (ii) upon the expiration of any Interest Period applicable to any Eurodollar Rate Loan, to continue all or any portion of such Loan equal to $2,000,000 and integral multiples of $ 1,000,000 in excess of that amount as a Eurodollar Rate Loan. (b) The Company shall deliver a Conversion/Continuation Notice to Administrative Agent no later than 1:00 p.m. (New York City time) at least one Business Day in advance of the proposed conversion date (in the case of a conversion to a Base Rate Loan) and at least three Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan). Except as otherwise provided herein, a Conversion/Continuation Notice for conversion to, or continuation of, any Eurodollar Rate Loans (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to effect a conversion or continuation in accordance therewith. 2.9. DEFAULT INTEREST. Upon the occurrence and during the continuance of an Event of Default described in Section 8.1, the principal amount of all Loans and, to the extent permitted by applicable law, any interest payments on the Loans or any fees or other amounts owed hereunder not paid when due, in each case whether at stated maturity, by notice of prepayment, by acceleration or otherwise, shall thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable on demand at a rate that is 2% per annum in excess of the interest rate otherwise payable hereunder with respect to the applicable Loans (or, in the case of any such fees and other amounts, at a rate which is 2% per annum in excess of the interest rate otherwise payable hereunder for Base Rate Loans); PROVIDED, in the case of Eurodollar Rate Loans, upon the expiration of the Interest Period in effect at the time any such increase in interest rate is effective such Eurodollar Rate Loans shall thereupon become Base Rate Loans and shall thereafter bear interest payable upon demand at a rate which is 2% per annum in excess of the interest rate otherwise payable hereunder for Base Rate Loans. Payment or acceptance of the increased rates of interest provided for in this Page 49 Section 2.9 is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Administrative Agent or any Lender. 2.10. FEES. (a) Company agrees to pay to Lenders having Revolving Exposure: commitment fees equal to (1) the average of the daily difference between (a) the Revolving Commitments, and (b) the aggregate principal amount of outstanding Revolving Loans (but not any outstanding Swing Line Loans), times (2) the Applicable Revolving Commitment Fee Percentage. All fees referred to in this Section 2.10(a) shall be paid to Administrative Agent at its Principal Office and upon receipt, Administrative Agent shall promptly distribute to each Lender its Pro Rata Share thereof. (b) All fees referred to in Section 2.10(a) shall be calculated on the basis of a 360-day year and the actual number of days elapsed and shall be payable quarterly in arrears on March 3 1, June 30, September 30 and December 31 of each year during the Revolving Commitment Period, commencing on the first such date to occur after the Closing Date, and on the Revolving Commitment Termination Date. (c) In addition to any of the foregoing fees, Company agrees to pay to Agents such other fees in the amounts and at the times separately agreed upon. 2.11. SCHEDULED PAYMENTS. SCHEDULED INSTALLMENTS. The principal amounts of the Term Loans shall be repaid in consecutive quarterly installments (each, an "Installment") in the aggregate amounts set forth below on the last day of each Fiscal Quarter set forth below (each, an "INSTALLMENT DATE"), commencing December 31, 2000:
TRANCHE A TRANCHE B FISCAL QUARTER ENDING TERM LOAN INSTALLMENTS TERM LOAN INSTALLMENTS - ---------------------- ---------------------- ----------------------- December 31, 2000 $250,000 $625,000 March 31, 2001 $250,000 $625,000 June 30, 2001 $250,000 $625,000 September 30, 2001 $250,000 $625,000 December 31, 2001 $1,500,000 $625,000 March 31, 2002 $1,500,000 $625,000 Page 50 June 30, 2002 $1,500,000 $625,000 September 30, 2002 $1,500,000 $625,000 December 31, 2002 $1,750,000 $625,000 March 31, 2003 $1,750,000 $625,000 June 30, 2003 $1,750,000 $625,000 September 30, 2003 $1,750,000 $625,000 December 31, 2003 $2,000,000 $625,000 March 31, 2004 $2,000,000 $625,000 June 30, 2004 $2,000,000 $625,000 September 30, 2004 $2,000,000 $625,000 December 31, 2004 $2,750,000 $625,000 March 31, 2005 $2,750,000 $625,000 June 30, 2005 $2,750,000 $625,000 September 30, 2005 $2,750,000 $625,000 December 31, 2005 $4,250,000 $625,000 March 31, 2006 $4,250,000 $625,000 June 30, 2006 $4,250,000 $625,000 September 30, 2006 $4,250,000 $625,000 December 31, 2006 0 $23,125,000 March 31, 2007 0 $23,125,000 June 30, 2007 0 $23,125,000 September 30, 2007 0 $23,125,000 December 31, 2007 0 $23,125,000 Page 51 March 31, 2008 0 $23,125,000 June 30, 2008 0 $23,125,000 September 30, 2008 0 $23,125,000
Notwithstanding the foregoing, (x) such Installments shall be reduced in connection with any voluntary or mandatory prepayments of the Tranche A Term Loans or the Tranche B Term Loans, as the case may be, in accordance with Sections 2.12, 2.14 and 2.14 as applicable; and (y) the Tranche A Term Loans and the Tranche B Term Loans, together with all other amounts owed hereunder with respect thereto, shall, in any event, be paid in full no later than the Tranche A Term Loan Maturity Date and the Tranche B Term Loan Maturity Date, respectively. Further notwithstanding the foregoing to the contrary set forth above, the scheduled repayment and reduction provisions with respect to New Tranche B Term Loans shall be set forth in each applicable joinder agreement and (i) such New Tranche B Term Loans shall be reduced in connection with any voluntary or mandatory prepayments of the Tranche B Term Loans in accordance with Section 2.12, 2.13 and 2.14 as applicable and (ii) the Tranche B Term Loans, together with all other amounts owed hereunder with respect thereto, shall be paid in full no later than the Tranche B Term Loan Maturity Date. 2.12. VOLUNTARY PREPAYMENTS/COMMITMENT REDUCTIONS. (a) VOLUNTARY PREPAYMENTS. (i) Any time and from time to time: (1) with respect to Base Rate Loans, Company may prepay, any such Loans on any Business Day in whole or in part, in an aggregate minimum amount of $1,000,000 and integral multiples of $500,000 in excess of that amount; (2) with respect to Eurodollar Rate Loans, Company may prepay, any such Loans on any Business Day in whole or in part in an aggregate minimum amount of $2,000,000 and integral multiples of $1,000,000 in excess of that amount; and (3) with respect to Swing Line Loans, Company may prepay, any such Loans on any Business Day in whole or in part in an aggregate minimum amount of $100,000, and in integral multiples of $ 100,000 in excess of that amount. (ii) All such prepayments shall be made: Page 52 (1) upon not less than one Business Day's prior written or telephonic notice in the case of Base Rate Loans; (2) upon not less than three Business Day's prior written or telephonic notice in the case of Eurodollar Rate Loans; and (3) upon written or telephonic notice on the date of prepayment, in the case of Swing Line Loans; in each case given to Administrative Agent or Swing Line Lender, as the case may be, by 1:00 p.m. (New York City time) on the date required and, if given by telephone, promptly confirmed in writing to Administrative Agent (and Administrative Agent will promptly transmit such telephonic or original notice for Term Loans or Revolving Loans, as the case may be, by telefacsimile or telephone to each Lender) or Swing Line Lender, as the case may be. Upon the giving of any such notice, the principal amount of the Loans specified in such notice shall become due and payable on the prepayment date specified therein. (b) VOLUNTARY COMMITMENT REDUCTIONS. (i) Company may, upon not less than three Business Days' prior written or telephonic notice confirmed in writing to Administrative Agent (which original written or telephonic notice Administrative Agent will promptly transmit by telefacsimile or telephone to each applicable Lender), at any time and from time to time terminate in whole or permanently reduce in part, without premium or penalty, the Revolving Commitments in an amount up to the amount by which the Revolving Commitments exceed the Total Utilization of Revolving Commitments at the time of such proposed termination or reduction; PROVIDED, any such partial reduction of the Revolving Commitments shall be in an aggregate minimum amount of $5,000,000 and integral multiples of $ 1,000,000 in excess of that amount. (ii) Company's notice to Administrative Agent shall designate the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction, and such termination or reduction of the Revolving Commitments shall be effective on the date specified in Company's notice and shall reduce the Revolving Commitment of each Lender proportionately to its Pro Rata Share thereof. 2.13. MANDATORY PREPAYMENTS/COMMITMENT REDUCTIONS. (a) ASSET SALES. No later than the first Business Day following the date of receipt by Holdings or any of its Subsidiaries of any Net Asset Sale Proceeds, Company shall prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.14(b) in an aggregate amount equal to such Net Asset Sale Proceeds; PROVIDED, (i) so long as no Default or Event of Default shall have occurred and be continuing, and (ii) to the extent that aggregate Net Asset Sale Proceeds from the Closing Date through the applicable date of determination do not exceed $10,000,000, Company shall have the option, directly or through one or more of its Subsidiaries, to invest Net Asset Sale Proceeds within two hundred seventy (270) days of receipt thereof in long term productive assets of the general type used in the business of Company and its Subsidiaries; PROVIDED FURTHER, pending any such investment all such Net Asset Sale Proceeds shall be applied to prepay Revolving Loans to the extent Page 53 outstanding (without a reduction in Revolving Commitments). Notwithstanding any of the foregoing to the contrary, upon receipt by Company of Net Asset Sale Proceeds pursuant to the sale of assets permitted under Section 6.9(d), Company may invest the first $1,000,000 of such proceeds directly or through one or more of its Subsidiaries in long-term productive assets of the general type used in the business of Company and its Subsidiaries, and the remainder of such Net Asset Sale Proceeds shall be applied in accordance with the provisions set forth above. (b) INSURANCE/CONDEMNATION PROCEEDS. No later than the first Business Day following the date of receipt by Holdings or any of its Subsidiaries, or Administrative Agent as loss payee, of any Net Insurance/Condemnation Proceeds, Company shall prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.14(b) in an aggregate amount equal to such Net Insurance/Condemnation Proceeds; PROVIDED (i) so long as no Default or Event of Default shall have occurred and be continuing, and (ii) to the extent that aggregate Net Insurance/Condemnation Proceeds from the Closing Date through the applicable date of determination do not exceed $10,000,000, Company shall have the option, directly or through one or more of its Subsidiaries to invest such Net Insurance/Condemnation Proceeds within two hundred seventy (270) days of receipt thereof in long term productive assets of the general type used in the business of Holdings and its Subsidiaries, which investment may include the repair, restoration or replacement of the applicable assets thereof, PROVIDED FURTHER, pending any such investment all such Net Insurance/Condemnation Proceeds, as the case may be, shall be applied to prepay Revolving Loans to the extent outstanding (without a reduction in Revolving Commitments). (c) ISSUANCE OF EQUITY SECURITIES. On the date of receipt by Holdings or Company of any Cash proceeds from a capital contribution to, or the issuance of any Capital Stock of, or the sale of any Capital Stock of, Holdings or any of its Subsidiaries (other than (i) any such capital contribution by, or issuance made to Sponsor or any Co-Investor or any of their Affiliates or a Permitted Investor or any of their Affiliates or (ii) pursuant to any employee stock or stock option compensation plan), Company shall prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.14(b) in an aggregate amount equal to 75% of such proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses; PROVIDED, HOWEVER, that notwithstanding any of the foregoing to the contrary set forth in this Section 2.13(c), to the extent Holdings, Company and/or any of their Subsidiaries receives any Cash proceeds from the issuance of Capital Stock or the sale of Capital Stock of any of Holdings' Subsidiaries in connection with the creation of a Permitted Partially-Owned Subsidiary, Holdings or Company shall on an annual basis commencing December 31, 2001, apply the aggregate amount of such Cash proceeds received, to the extent such aggregate amount exceeds $250,000 per annum to prepay the Loans and/or reduce the Revolving Commitments in accordance with Section 2.14(b). (d) ISSUANCE OF DEBT. On the date of receipt by Holdings or any of its Subsidiaries of any Cash proceeds from incurrence of any Indebtedness of Holdings or any of its Subsidiaries (other than with respect to any Indebtedness permitted to be incurred pursuant to Section 6.1), Company shall prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.14(b) in an aggregate amount equal to 100% of Page 54 such proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses. (e) CONSOLIDATED EXCESS CASH FLOW. In the event that there shall be Consolidated Excess Cash Flow for any Fiscal Year (commencing with the Fiscal Year ending December 31, 2001), Company shall, no later than one hundred (100) days after the end of such Fiscal Year, prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.14(b) in an aggregate amount equal to 75% of such Consolidated Excess Cash Flow. (f) REVOLVING LOANS AND SWING LOANS. Company shall from time to time prepay FIRST, the Swing Line Loans, and SECOND, the Revolving Loans to the extent necessary so that the Total Utilization of Revolving Commitments shall not at any time exceed the Revolving Commitments then in effect. (g) PREPAYMENT CERTIFICATE. Concurrently with any prepayment of the Loans and/or reduction of the Revolving Commitments pursuant to Sections 2.13(a) through 2.13(e), Company shall deliver to Administrative Agent a certificate of an Authorized Officer demonstrating the calculation of the amount of the applicable net proceeds or Consolidated Excess Cash Flow, as the case may be. In the event that Company shall subsequently determine that the actual amount received exceeded the amount set forth in such certificate, Company shall promptly make an additional prepayment of the Loans and/or the Revolving Commitments shall be permanently reduced in an amount equal to such excess, and Company shall concurrently therewith deliver to Administrative Agent a certificate of an Authorized Officer demonstrating the derivation of such excess. 2.14. APPLICATION OF PREPAYMENTS/REDUCTIONS. (a) APPLICATION OF VOLUNTARY PREPAYMENTS BY TYPE OF LOANS. Any pre-payment of any Loan pursuant to Section 2.12(a) shall be applied as specified by Company in the applicable notice of prepayment; PROVIDED, in the event Company fails to specify the Loans to which any such prepayment shall be applied, such prepayment shall be applied as follows: FIRST, to repay outstanding Swing Line Loans to the full extent thereof; SECOND, to repay outstanding Revolving Loans to the full extent thereof; and THIRD, to prepay the Tranche A Term Loans and the Tranche B Term Loans on a pro rata basis (in accordance with the respective outstanding principal amounts thereof) and shall be further applied on a pro rata basis to each scheduled Installment of principal of the Tranche A Term Loans and Tranche B Term Loans. Any prepayment of any Term Loan pursuant to Section 2.12(a) shall be further applied on a pro rata basis to reduce the scheduled remaining installments of principal on such Term Loan. Page 55 (b) APPLICATION OF MANDATORY PREPAYMENTS BY TYPE OF LOANS. Any amount required to be paid pursuant to Sections 2.13(a) through 2.13(e) shall be applied FIRST, to prepay Term Loans on a pro rata basis (in accordance with the respective outstanding principal amounts thereof) and shall be further applied on a pro rata basis to the remaining scheduled Installments of principal of the Tranche A Term Loans and Tranche B Term Loans; SECOND, to prepay the Swing Line Loans to the full extent thereof and to permanently reduce the Revolving Commitments by the amount of such prepayment; THIRD, to prepay the Revolving Loans to the full extent thereof and to further permanently reduce the Revolving Commitments by the amount of such prepayment; and FOURTH, to further permanently reduce the Revolving Commitments to the full extent thereof. (c) WAIVABLE MANDATORY PREPAYMENT. Anything contained herein to the contrary notwithstanding, so long as any Tranche A Term Loans are outstanding, in the event Company is required to make any mandatory prepayment (a "WAIVABLE MANDATORY PREPAYMENT") of the Tranche B Term Loans, not less than three Business Days prior to the date (the "REQUIRED PREPAYMENT DATE") on which Company is required to make such Waivable Mandatory Prepayment, Company shall notify Administrative Agent of the amount of such prepayment, and Administrative Agent will promptly thereafter notify each Lender holding an outstanding Tranche B Term Loan of the amount of such Lender's Pro Rata Share of such Waivable Mandatory Prepayment and such Lender's option to refuse such amount. Each such Lender may exercise such option by giving written notice to Company and Administrative Agent of its election to do so on or before the first Business Day prior to the Required Prepayment Date (it being understood that any Lender which does not notify Company and Administrative Agent of its election to exercise such option on or before the first Business Day prior to the Required Prepayment Date shall be deemed to have elected, as of such date, not to exercise such option). On the Required Prepayment Date, Company shall pay to Administrative Agent the amount of the Waivable Mandatory Prepayment, which amount shall be applied (i) in an amount equal to that portion of the Waivable Mandatory Prepayment payable to those Lenders that have elected not to exercise such option, to prepay the Tranche B Term Loans of such Lenders (which prepayment shall be applied to the scheduled Installments of principal of the Tranche B Term Loans in accordance with Section 2.14(b)), and (ii) in an amount equal to that portion of the Waivable Mandatory Prepayment otherwise payable to those Lenders that have elected to exercise such option, to prepay the Tranche A Term Loans (which prepayment shall be further applied to the scheduled installments of principal of the Tranche A Term Loans in accordance with Section 2.14(b)). (d) APPLICATION OF PREPAYMENTS OF LOANS TO BASE RATE LOANS AND EURODOLLAR RATE LOANS. Considering each Class of Loans being prepaid separately, any prepayment thereof shall be applied first to Base Rate Loans to the full extent thereof before application to Eurodollar Rate Loans, in each case in a manner which minimizes the amount of any payments required to be made by Company pursuant to Section 2.17(c). Page 56 2.15. GENERAL PROVISIONS REGARDING PAYMENTS. (a) All payments by Company of principal, interest, fees and other Obligations shall be made in Dollars in same day funds, without defense, setoff or counterclaim, free of any restriction or condition, and delivered to Administrative Agent not later than 1:00 p.m. (New York City time) on the date due at the Administrative Agent's Principal Office for the account of Lenders; funds received by Administrative Agent after that time on such due date shall be deemed to have been paid by Company on the next succeeding Business Day. (b) All payments in respect of the principal amount of any Loan (other than voluntary prepayments of Revolving Loans) shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments (and, in any event, any payments in respect of any Loan on a date when interest is due and payable with respect to such Loan) shall be applied to the payment of interest before application to principal. (c) Administrative Agent shall promptly distribute to each Lender at such address as such Lender shall indicate in writing, such Lender's applicable Pro Rata Share of all payments and prepayments of principal and interest due hereunder, together with all other amounts due thereto, including, without limitation, all fees payable with respect thereto, to the extent received by Administrative Agent. (d) Notwithstanding the foregoing provisions hereof, if any Conversion/Continuation Notice is withdrawn as to any Affected Lender or if any Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any Eurodollar Rate Loans, Administrative Agent shall give effect thereto in apportioning payments received thereafter. (e) Subject to the provisos set forth in the definition of "Interest Period", whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or of the Revolving Commitment fees hereunder. (f) Company hereby authorizes Administrative Agent to charge Company's accounts with Administrative Agent in order to cause timely payment to be made to Administrative Agent of all principal, interest, fees and expenses due hereunder (subject to sufficient funds being available in its accounts for that purpose). (g) Administrative Agent shall deem any payment by or on behalf of Company hereunder that is not made in same day funds prior to 1:00 p.m. (New York City time) to be a nonconforming payment. Any such payment shall not be deemed to have been received by Administrative Agent until the later of (i) the time such funds become available funds, and (ii) the applicable next Business Day. Administrative Agent shall give prompt telephonic notice to Company and each applicable Lender (confirmed in writing) if any payment is non-conforming. Any non-conforming payment may constitute or become a Default or Event of Default in accordance with the terms of Section 8.1(a). Interest shall continue to accrue on any principal as to which a nonconforming payment is made until such funds become available funds (but in no event less than the period from the date of such payment to the next succeeding applicable Page 57 Business Day) at the rate determined pursuant to Section 2.9 from the date such amount was due and payable until the date such amount is paid in full. (h) If an Event of Default shall have occurred and not otherwise been waived, and the maturity of the Obligations shall have been accelerated pursuant to Section 8.1, all payments or proceeds received by Agents hereunder in respect of any of the Obligations, shall be applied in accordance with the application arrangements described in Section 6.5 of the Pledge and Security Agreement. 2.16. RATABLE SHARING. Lenders hereby agree among themselves that, except as otherwise provided in the Collateral Documents with respect to amounts realized from the exercise of rights with respect to Liens on the Collateral, if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Loans made and applied in accordance with the terms hereof), through the exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the Credit Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, fees and other amounts then due and owing to such Lender hereunder or under the other Credit Documents (collectively, the "AGGREGATE AMOUNTS DUE" to such Lender) which is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (a) notify Administrative Agent and each other Lender of the receipt of such payment and (b) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them; PROVIDED, if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of Company or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent of such recovery, but without interest. Company expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by Company to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder. 2.17. MAKING OR MAINTAINING EURODOLLAR RATE LOANS. (a) INABILITY TO DETERMINE APPLICABLE INTEREST RATE. In the event that Administrative Agent shall have determined (which determination shall be prima facie evidence thereof), on any Interest Rate Determination Date with respect to any Eurodollar Rate Loans, that by reason of circumstances affecting the London interbank market adequate and fair means do not exist for ascertaining the interest rate applicable to such Loans on the basis provided for in the definition of Adjusted Eurodollar Rate, Administrative Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to Company and each Lender of such determination, whereupon (i) no Loans may be made as, or converted to, Eurodollar Rate Loans until such time as Administrative Agent notifies Company and Lenders that the circumstances Page 58 giving rise to such notice no longer exist, and (ii) any Funding Notice or Conversion/Continuation Notice given by Company with respect to the Loans in respect of which such determination was made shall be deemed to be rescinded by Company. (b) ILLEGALITY OR IMPRACTICABILITY OF EURODOLLAR RATE LOANS. In the event that on any date any Lender shall have determined (which determination shall be prima facie evidence thereof, but shall be made only after consultation with Company and Administrative Agent) that the making, maintaining or continuation of its Eurodollar Rate Loans (i) has become unlawful as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful), or (ii) has become impracticable, as a result of contingencies occurring after the date hereof which materially and adversely affect the London interbank market or the position of such Lender in that market, then, and in any such event, such Lender shall be an "AFFECTED LENDER" and it shall on that day give notice (by telefacsimile or by telephone confirmed in writing) to Company and Administrative Agent of such determination (which notice Administrative Agent shall promptly transmit to each other Lender). Thereafter (1) the obligation of the Affected Lender to make Loans as, or to convert Loans to, Eurodollar Rate Loans shall be suspended until such notice shall be withdrawn by the Affected Lender, (2) to the extent such determination by the Affected Lender relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Funding Notice or a Conversion/Continuation Notice, the Affected Lender shall make such Loan as (or continue such Loan as or convert such Loan to, as the case may be) a Base Rate Loan, (3) the Affected Lender's obligation to maintain its outstanding Eurodollar Rate Loans (the "AFFECTED LOANS") shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (4) the Affected Loans shall automatically convert into Base Rate Loans on the date of such termination. Notwithstanding the foregoing, to the extent a determination by an Affected Lender as described above relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Funding Notice or a Conversion/Continuation Notice, Company shall have the option, subject to the provisions of Section 2.17(c), to rescind such Funding Notice or Conversion/Continuation Notice as to all Lenders by giving notice (by telefacsimile or by telephone confirmed in writing) to Administrative Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above (which notice of rescission Administrative Agent shall promptly transmit to each other Lender). Except as provided in the immediately preceding sentence, nothing in this Section 2.17(b) shall affect the obligation of any Lender other than an Affected Lender to make or maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in accordance with the terms hereof. (c) COMPENSATION FOR BREAKAGE OR NON-COMMENCEMENT OF INTEREST PERIODS. Company shall compensate each Lender, upon written request by such Lender (which request shall set forth the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including any interest paid by such Lender to lenders of funds borrowed by it to make or carry its Eurodollar Rate Loans and any loss, expense or liability sustained by such Lender in connection with the liquidation or re-employment of such funds but excluding loss of anticipated profits) which such Lender may sustain: (1) if for any reason (other than a default by such Lender) a borrowing of any Eurodollar Rate Loan does not occur on a date specified therefor Page 59 in a Funding Notice or a telephonic request for borrowing, or a conversion to or continuation of any Eurodollar Rate Loan does not occur on a date specified therefor in a Conversion/Continuation Notice or a telephonic request for conversion or continuation; (ii) if any prepayment or other principal payment or any conversion of any of its Eurodollar Rate Loans occurs on a date prior to the last day of an Interest Period applicable to that Loan; or (iii) if any prepayment of any of its Eurodollar Rate Loans is not made on any date specified in a notice of prepayment given by Company. (d) BOOKING OF EURODOLLAR RATE LOANS. Any Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of such Lender. (e) ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR RATE LOANS. Calculation of all amounts payable to a Lender under this Section 2.17 and under Section 2.18 shall be made as though such Lender had actually funded each of its relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to clause (i) of the definition of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar Rate Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit from an offshore office of such Lender to a domestic office of such Lender in the United States of America; PROVIDED, HOWEVER, each Lender may fund each of its Eurodollar Rate Loans in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this Section 2.17 and under Section 2.18. 2.18. INCREASED COSTS; CAPITAL ADEQUACY. (a) COMPENSATION FOR INCREASED COSTS AND TAXES. Subject to the provisions of Section 2.19 (which shall be controlling with respect to the matters covered thereby), in the event that any Lender shall determine (which determination shall be prima facie evidence thereof) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): (i) subjects such Lender (or its applicable lending office) to any additional Tax (other than any Tax on the overall net income of such Lender) with respect to this Agreement or any of the other Credit Documents or any of its obligations hereunder or thereunder or any payments to such Lender (or its applicable lending office) of principal, interest, fees or any other amount payable hereunder; (ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements with respect to Eurodollar Rate Loans that are reflected in the definition of Adjusted Eurodollar Rate); or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the London interbank Page 60 market; and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, Company shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this Section 2.18(a), which statement shall be prima facie evidence thereof. (b) CAPITAL ADEQUACY ADJUSTMENT. In the event that any Lender shall have determined that the adoption, effectiveness, phase-in or applicability after the Closing Date of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Loans or Revolving Commitments, or participations therein or other obligations hereunder with respect to the Loans to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within five Business Days after receipt by Company from such Lender of the statement referred to in the next sentence, Company shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to Lender under this Section 2.18(b), which statement shall be prima facie evidence thereof. 2.19. TAXES; WITHHOLDING, ETC. (a) PAYMENTS TO BE FREE AND CLEAR. All sums payable by any Credit Party hereunder and under the other Credit Documents shall (except to the extent required by law) be paid free and clear of, and without any deduction or withholding on account of, any Tax (other than a franchise Tax or a Tax on the overall net income of any Lender) imposed, levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a payment is made by or on behalf of any Credit Party. (b) WITHHOLDING OF TAXES. If any Credit Party or any other Person is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by any Credit Party to Administrative Agent or any Lender under any of the Credit Page 61 Documents: (i) Company shall notify Administrative Agent of any such requirement or any change in any such requirement as soon as Company becomes aware of it; (ii) Company shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on any Credit Party) for its own account or (if that liability is imposed on Administrative Agent or such Lender, as the case may be) on behalf of and in the name of Administrative Agent or such Lender; (iii) the sum payable by such Credit Party in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, Administrative Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and (iv) within thirty (30) days after paying any sum from which it is required by law to make any deduction or withholding, and within thirty (30) days after the due date of payment of any Tax which it is required by clause (ii) above to pay, Company shall deliver to Administrative Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority; PROVIDED, no such additional amount shall be required to be paid to any Lender or Administrative Agent under clause (iii) above except to the extent that any change after the date hereof (in the case of each Lender listed on the signature pages hereof on the Closing Date) or after the effective date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in any requirement mentioned therein for a deduction, withholding or payment shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the date hereof or at the date of such Assignment Agreement, as the case may be, in respect of payments to such Lender or Administrative Agent. (c) EVIDENCE OF EXEMPTION FROM U.S. WITHHOLDING TAX. (i) Each Lender that is not a United States Person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code) for U.S. federal income tax purposes (a "NON-US LENDER") shall deliver to Administrative Agent for transmission to Company, on or prior to the Closing Date (in the case of each Lender listed on the signature pages hereof on the Closing Date) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of Company or Administrative Agent (each in the reasonable exercise of its discretion), (A) two original copies of Internal Revenue Service Form W-8BEN or W-8ECI (or any successor forms), properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the Credit Documents, or (B) if such Lender is not a "bank" or other Person described in Section 881(c)(3) of the Internal Revenue Code and cannot deliver either Internal Revenue Service Form W-8BEN or W-8ECI pursuant to clause (A) above, a Certificate re Non-Bank Status together with two original copies of Internal Revenue Service Form W-8 (or any successor form), properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of interest payable under any of the Credit Documents. Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to this Section 2.19(c) hereby agrees, Page 62 from time to time after the initial delivery by such Lender of such forms, certificates or other evidence, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence obsolete or inaccurate in any material respect, that such Lender shall promptly deliver to Administrative Agent for transmission to Company two new original copies of Internal Revenue Service Form W-8BEN or W-8ECI, or a Certificate re Non-Bank Status and two original copies of Internal Revenue Service Form W-8, as the case may be, properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company to confirm or establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to payments to such Lender under the Credit Documents, or notify Administrative Agent and Company of its inability to deliver any such forms, certificates or other evidence. Company shall not be required to pay any additional amount to any Non-US Lender under Section 2.19(b)(iii) if such Lender shall have failed to deliver the forms, certificates or other evidence referred to in the second sentence of this Section 2.19(c), or (2) to notify Administrative Agent and Company of its inability to deliver any such forms, certificates or other evidence, as the case may be; PROVIDED, if such Lender shall have satisfied the requirements of the first sentence of this Section 2.19(c) on the Closing Date or on the date of the Assignment Agreement pursuant to which it became a Lender, as applicable, nothing in this last sentence of Section 2.19(c) shall relieve Company of its obligation to pay any additional amounts pursuant to Section 2.18(a) in the event that, as a result of any change in any applicable law, treaty or governmental rule, regulation or order, or any change in the interpretation, administration or application thereof, such Lender is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described herein. (i) If any non-corporate Lender is a United States Person as such term is defined in the Internal Revenue Code, such Lender shall deliver to Administrative Agent on or prior to the Closing Date or on or prior to the date of the Assignment Agreement, pursuant to which it becomes a Lender (in the case of each other Lender) two original copies of Internal Revenue Service Form W-9 (or any successor forms), properly completed and duly executed by such Lender and such other documentation required under the Internal Revenue Code to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to such principal, interest, fees or other amounts payable under the any of the Credit Documents. 2.20. OBLIGATION TO MITIGATE. Each Lender agrees that, as promptly as practicable after the officer of such Lender responsible for administering its Loans becomes aware of the occurrence of an event or the existence of a condition that would cause such Lender to become an Affected Lender or that would entitle such Lender to receive payments under Section 2.17, 2.18 or 2.19, it will, to the extent not inconsistent with the internal policies of such Lender and any applicable legal or regulatory restrictions, use reasonable efforts to (a) make, issue, fund or maintain its Credit Extensions, including any Affected Loans, through another office of such Lender, or (b) take such other measures as such Lender may deem reasonable, if as a result thereof the circumstances which would cause such Lender to be an Affected Lender would cease to exist or the additional amounts which would otherwise be required to be paid to such Lender pursuant to Section 2.17, 2.18 or 2.19 would be materially reduced and if, as determined by such Lender in its sole but reasonable discretion, the making, issuing, funding or maintaining of such Page 63 Revolving Commitments or Loans through such other office or in accordance with such other measures, as the case may be, would not otherwise adversely affect such Revolving Commitments or Loans or the interests of such Lender; PROVIDED, such Lender will not be obligated to utilize such other office pursuant to this Section 2.20 unless Company agrees to pay all incremental expenses incurred by such Lender as a result of utilizing such other office as described above. A certificate as to the amount of any such expenses payable by Company pursuant to this Section 2.20 (setting forth in reasonable detail the basis for requesting such amount) submitted by such Lender to Company (with a copy to Administrative Agent) shall be prima facie evidence thereof. 2.21. DEFAULTING LENDERS. Anything contained herein to the contrary notwithstanding, in the event that any Lender, at the direction or request of any regulatory agency or authority, defaults (a "DEFAULTING LENDER") in its obligation to fund (a "FUNDING DEFAULT") any Revolving Loan or its portion of any unreimbursed payment under Section 2.3(b)(iv) (in each case, a "DEFAULTED LOAN"), then (a) during any Default Period with respect to such Defaulting Lender, such Defaulting Lender shall be deemed not to be a "Lender" for purposes of voting on any matters (including the granting of any consents or waivers) with respect to any of the Credit Documents; (b) to the extent permitted by applicable law, until such time as the Default Excess with respect to such Defaulting Lender shall have been reduced to zero, (i) any voluntary prepayment of the Revolving Loans shall, if Company so directs at the time of making such voluntary prepayment, be applied to the Revolving Loans of other Lenders as if such Defaulting Lender had no Revolving Loans outstanding and the Revolving Exposure of such Defaulting Lender were zero, and (ii) any mandatory prepayment of the Revolving Loans shall, if Company so directs at the time of making such mandatory prepayment, be applied to the Revolving Loans of other Lenders (but not to the Revolving Loans of such Defaulting Lender) as if such Defaulting Lender had funded all Defaulted Loans of such Defaulting Lender, it being understood and agreed that Company shall be entitled to retain any portion of any mandatory prepayment of the Revolving Loans that is not paid to such Defaulting Lender solely as a result of the operation of the provisions of this clause (b); (c) such Defaulting Lender's Revolving Commitment and outstanding Revolving Loans shall be excluded for purposes of calculating the Revolving Commitment fee payable to Lenders in respect of any day during any Default Period with respect to such Defaulting Lender, and such Defaulting Lender shall not be entitled to receive any Revolving Commitment fee pursuant to Section 2.10 with respect to such Defaulting Lender's Revolving Commitment in respect of any Default Period with respect to such Defaulting Lender; and (d) the Total Utilization of Revolving Commitments as at any date of determination shall be calculated as if such Defaulting Lender had funded all Defaulted Loans of such Defaulting Lender. No Revolving Commitment of any Lender shall be increased or otherwise affected, and, except as otherwise expressly provided in this Section 2.21, performance by Company of its obligations hereunder and the other Credit Documents shall not be excused or otherwise modified as a result of any Funding Default or the operation of this Section 2.21. The rights and remedies against a Defaulting Lender under this Section 2.21 are in addition to other rights and remedies which Company may have against such Defaulting Lender with respect to any Funding Default and which Administrative Agent or any Lender may have against such Defaulting Lender with respect to any Funding Default. 2.22. REMOVAL OR REPLACEMENT OF A LENDER. Anything contained herein to the contrary notwithstanding, in the event that: (a) any Lender (an "INCREASED-COST LENDER") shall Page 64 give notice to Company that such Lender is an Affected Lender or that such Lender is entitled to receive payments under Section 2.17, 2.18 or 2.19, the circumstances which have caused such Lender to be an Affected Lender or which entitle such Lender to receive such payments shall remain in effect, and such Lender shall fail to withdraw such notice within five Business Days after Company's request for such withdrawal; or (b) any Lender shall become a Defaulting Lender, the Default Period for such Defaulting Lender shall remain in effect, and such Defaulting Lender shall fall to cure the default as a result of which it has become a Defaulting Lender within five Business Days after Company's request that it cure such default; or (c) in connection with any proposed amendment, modification, termination, waiver or consent with respect to any of the provisions hereof as contemplated by Section 10.5(b), the consent of Requisite Lenders shall have been obtained but the consent of one or more of such other Lenders (each a "NON-CONSENTING LENDER") whose consent is required shall not have been obtained; then, with respect to each such Increased-Cost Lender, Defaulting Lender or Non-Consenting Lender (the "TERMINATED LENDER"), Company may, by giving written notice to Administrative Agent and any Terminated Lender of its election to do so, elect to cause such Terminated Lender (and such Terminated Lender hereby irrevocably agrees) to assign its outstanding Loans and its Revolving Commitments, if any, in full to one or more Eligible Assignees (each a "REPLACEMENT LENDER") in accordance with the provisions of Section 10.6 and Terminated Lender shall pay any fees payable thereunder in connection with such assignment; PROVIDED, (1) on the date of such assignment, the Replacement Lender shall pay to Terminated Lender an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Terminated Lender, (B) an amount equal to all unreimbursed drawing that have been funded by such Terminated Lender, together with all then unpaid interest with respect thereto at such time and (C) an amount equal to all accrued, but theretofore unpaid fees owing to such Terminated Lender pursuant to Section 2.10; (2) on the date of such assignment, Company shall pay any amounts payable to such Terminated Lender pursuant to Section 2.17(c), 2.18 or 2.19 or otherwise as if it were a prepayment; and (3) in the event such Terminated Lender is a Non-Consenting Lender, each Replacement Lender shall consent, at the time of such assignment, to each matter in respect of which such Terminated Lender was a Non-Consenting Lender. Upon the prepayment of all amounts owing to any Terminated Lender and the termination of such Terminated Lender's Revolving Commitments, if any, such Terminated Lender shall no longer constitute a "Lender" for purposes hereof; PROVIDED, any rights of such Terminated Lender to indemnification hereunder shall survive as to such Terminated Lender. SECTION 3. CONDITIONS PRECEDENT 3.1. CLOSING DATE. The obligation of any Lender to make a Credit Extension on the Closing Date is subject to the satisfaction, or waiver in accordance with Section 10.5, of the following conditions on or before the Closing Date: (a) CREDIT DOCUMENTS. Administrative Agent shall have received sufficient copies of each Credit Document originally executed and delivered by each applicable Credit Party for each Lender. (b) ORGANIZATIONAL DOCUMENTS, INCUMBENCY. Administrative Agent shall have received (i) sufficient copies of each Organizational Document originally executed and delivered by each Credit Party, as applicable, and, to the extent applicable, certified as of a recent date by Page 65 the appropriate governmental official, for each Lender, each dated the Closing Date or a recent date prior thereto; (ii) signature and incumbency certificates of the officers of such Person executing the Credit Documents to which it is a party; (iii) resolutions of the Board of Directors or similar governing body of each Credit Party approving and authorizing the execution, delivery and performance of this Agreement and the other Credit Documents and the Related Agreements to which it is a party or by which it or its assets may be bound as of the Closing Date, certified as of the Closing Date by its secretary or an assistant secretary as being in full force and effect without modification or amendment; (iv) a good standing certificate from the applicable Governmental Authority of each Credit Party's jurisdiction of incorporation, organization or formation and in each jurisdiction in which it is qualified as a foreign corporation or other entity to do business, each dated a recent date prior to the Closing Date; and (v) such other documents as Administrative Agent may reasonably request. (c) ORGANIZATIONAL AND CAPITAL STRUCTURE. The organizational structure and capital structure of Holdings and its Subsidiaries, after giving effect to the Acquisition, shall be as set forth on Schedule 4.1. (d) CAPITALIZATION OF HOLDINGS AND COMPANY. On or before the Closing Date: (i) Sponsor, Co-Investors and the Management Investors shall have made the Equity Contribution; (ii) Company shall have (x) issued and sold the Senior Subordinated Notes for gross cash proceeds therefor in an aggregate amount of not less than $50,000,000 and (y) delivered to Administrative Agent and Syndication Agent a certificate of its Authorized Officer, in form and substance satisfactory to Administrative Agent and Syndication Agent, certifying that the proceeds of the Senior Subordinated Notes have been irrevocably committed, prior to the application of the proceeds of the Term Loans, to the payment of a portion of the Acquisition Financing Requirements in accordance with the Merger Agreement; (iii) Holdings shall have (x) issued and sold the Holdings Senior Notes for gross cash proceeds therefor in an aggregate amount of not less than $70,000,000 and (y) delivered to Administrative Agent and Syndication Agent a certificate of its Authorized Officer, in form and substance satisfactory to Administrative Agent and Syndication Agent, certifying that the proceeds of the Holdings Senior Notes have been irrevocably committed, prior to the application of the proceeds of the Term Loans, to the payment of a portion of the Acquisition Financing Requirements in accordance with the Merger Agreement; and (iv) Syndication Agent and Administrative Agent shall have received evidence that the proceeds of the debt and equity capitalization of Merger Corp. and Company described in the immediately preceding clauses (i), (ii) and (iii) have been irrevocably committed, prior to the application of the proceeds of the Loans, to the payment of a portion of the Acquisition Financing Requirements. (e) CONSUMMATION OF THE ACQUISITION. (i) Syndication Agent and Administrative Agent shall have received evidence satisfactory to them that, immediately following the application of the proceeds of the Page 66 Term Loans, (1) all conditions to the Acquisition set forth in the Merger Agreement shall have been satisfied or the fulfillment of any such conditions shall have been waived with the consent of Syndication Agent and Administrative Agent, (2) the Acquisition shall have become effective in accordance with the terms of the Merger Agreement, and (3) the aggregate cash consideration paid by Sponsor and its Co-Investors and Holdings and its Subsidiaries to the holders of Holdings' Capital Stock in connection with the Acquisition shall not exceed $338,000,000 (excluding the amount of cash consideration represented by the aggregate exercise prices of any options to purchase the Capital Stock of Holdings that are exercised after May 30, 2000 and prior to the Closing Date); PROVIDED, HOWEVER, that such $338,000,000 shall be reduced by the aggregate amount of deferred purchase price to be paid after the Closing Date for restricted Capital Stock of Holdings held by certain employees of Holdings and its Subsidiaries to be repurchased by Holdings and/or Company and its Subsidiaries as of the Closing Date. (ii) Syndication Agent and Administrative Agent shall each have received a fully executed or conformed copy of each Related Agreement and any documents executed in connection therewith, together with copies of each of the opinions of counsel delivered to the parties under the Related Agreements, which shall provide that Agents and Lenders may rely, or be accompanied by a letter from each such counsel (to the extent not inconsistent with such counsel's established internal policies) authorizing Agents and Lenders to rely, upon such opinion to the same extent as though it were addressed to Agents and Lenders. Each Related Agreement shall be in full force and effect and no provision thereof shall have been modified or waived in any respect determined by Syndication Agent or Administrative Agent to be material, in each case without the consent of Syndication Agent and Administrative Agent. (iii) Syndication Agent and Administrative Agent shall each have received a certificate from an Authorized Officer of each applicable Credit Party, in form and substance satisfactory to Syndication Agent and Administrative Agent, to the effect set forth in clauses (i) and (ii) above. (f) EXISTING INDEBTEDNESS. Except as set forth on Schedule 6.1, on the Closing Date, Holdings and its Subsidiaries shall have (i) repaid in full all Existing Indebtedness, (ii) terminated any commitments to lend or make other extensions of credit thereunder, (iii) delivered to Syndication Agent and Administrative Agent all documents or instruments necessary to release all Liens securing Existing Indebtedness or other obligations of Holdings and its Subsidiaries thereunder being repaid on the Closing Date, except for those documents and instruments not delivered with the consent of the Syndication Agent and Administrative Agent, such consent not to be unreasonably withheld, and (iv) made arrangements satisfactory to Syndication Agent and Administrative Agent with respect to the cancellation of any letters of credit outstanding thereunder. (g) RELATED AGREEMENTS. All Related Agreements relating to the corporate structure of the Company and the Guarantors, all organizational documents of such entities and the employment contracts of key employees and executives shall be reasonably satisfactory to Agents. (h) GOVERNMENTAL AUTHORIZATIONS AND CONSENTS. Each Credit Party shall have obtained all Governmental Authorizations and all consents of other Persons, in each case that are Page 67 necessary or advisable in connection with the transactions contemplated by the Credit Documents and the Related Agreements and each of the foregoing shall be in full force and effect and in form and substance reasonably satisfactory to Syndication Agent and Administrative Agent. All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the transactions contemplated by the Credit Documents or the Related Agreements or the financing thereof and no action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, and the time for any applicable agency to take action to set aside its consent on its own motion shall have expired. (i) REAL ESTATE ASSETS. In order to create in favor of Collateral Agent, for the benefit of Secured Parties, a valid and, subject to any filing and/or recording referred to herein, perfected First Priority security interest in certain Real Estate Assets, Collateral Agent shall have received from Company and each applicable Guarantor: (i) fully executed and notarized Mortgages, in proper form for recording in all appropriate places in all applicable jurisdictions, encumbering each Real Estate Asset listed in Schedule 3.1(i) (each, a "CLOSING DATE MORTGAGED PROPERTY"); (ii) an opinion of counsel (which counsel shall be reasonably satisfactory to Collateral Agent and Syndication Agent) in such states as may be reasonably requested by Collateral Agent and Syndication Agent with respect to the enforceability of the form(s) of Mortgages to be recorded in such state and such other matters as Collateral Agent may reasonably request, in each case in form and substance reasonably satisfactory to Syndication Agent and Administrative Agent; (iii) in the case of each Leasehold Property that is a Closing Date Mortgaged Property, (1) a Landlord Consent and Estoppel Agreement and (2) evidence that such Leasehold Property is a Recorded Leasehold Interest; (iv) (A) ALTA mortgagee title insurance policies or unconditional commitments therefor issued by one or more title companies reasonably satisfactory to Collateral Agent with respect to each Closing Date Mortgaged Property (each, a "TITLE POLICY"), in amounts not less than the fair market value of each Closing Date Mortgaged Property, together with a title report issued by a title company with respect thereto, dated not more than thirty (30) days prior to the Closing Date and copies of all recorded documents listed as exceptions to title or otherwise referred to therein, each in form and substance reasonably satisfactory to Collateral Agent; (B) evidence satisfactory to Collateral Agent that such Credit Party has paid to the title company or the appropriate governmental authorities all expenses and premiums of the title company and all other sums required in connection with the issuance of each Title Policy and all recording and stamp taxes (including mortgage recording and intangible taxes) payable in connection with recording the Mortgages for each Closing Date Mortgaged Property in the appropriate real estate records; (v) evidence of flood insurance with respect to each Flood Hazard Property that is located in a community that participates in the National Flood Insurance Page 68 Program, in each case in compliance with any applicable regulations of the Board of Governors of the Federal Reserve System, in form and substance reasonably satisfactory to Collateral Agent; and (vi) ALTA surveys of all Closing Date Mortgaged Properties which are not Leasehold Properties, to the extent available. (j) PERSONAL PROPERTY COLLATERAL. In order to create in favor of Collateral Agent, for the benefit of Secured Parties, a valid and perfected First Priority security interest in the personal property Collateral, Collateral Agent shall have received: (i) evidence satisfactory to the Collateral Agent of the compliance by each Credit Party of their obligations under the Pledge and Security Agreement and the other Collateral Documents (including, without limitation, their obligations to execute and deliver UCC financing statements, originals of securities, instruments and chattel paper and any agreements governing deposit and/or securities accounts as provided therein); (ii) a completed UCC Questionnaire dated the Closing Date and executed by an Authorized Officer of each Credit Party, together with all attachments contemplated thereby, including (A) the results of a recent search, by a Person satisfactory to Collateral Agent, of all effective UCC financing statements (or equivalent filings) made with respect to any personal or mixed property of any Credit Party in the jurisdictions contemplated by the UCC Questionnaire, together with copies of all such filings disclosed by such search, and (B) UCC termination statements (or similar documents) duly executed by all applicable Persons for filing in all applicable jurisdictions as may be necessary to terminate any effective UCC financing statements (or equivalent filings) disclosed in such search (other than any such financing statements in respect of Permitted Liens); (iii) opinions of counsel (which counsel shall be reasonably satisfactory to Collateral Agent and Syndication Agent) in such states as may be reasonably requested by Collateral Agent and Syndication Agent with respect to the creation and perfection of the security interests in favor of Collateral Agent in such Collateral and such other matters governed by the laws of each jurisdiction in which any Credit Party or any personal property Collateral is located as Collateral Agent may reasonably request, in each case in form and substance reasonably satisfactory to Collateral Agent; and (iv) evidence that each Credit Party shall have taken or caused to be taken any other action, executed and delivered or caused to be executed and delivered any other agreement, document and instrument and made or caused to be made any other filing and recording (other than as set forth herein) reasonably required by Collateral Agent. (k) ENVIRONMENTAL REPORTS. Syndication Agent and Administrative Agent shall have received reports and other information, in form, scope and substance satisfactory to Syndication Agent and Administrative Agent, regarding environmental matters relating to the Facilities. (l) FINANCIAL STATEMENTS; PROJECTIONS. Lenders shall have received from Holdings (i) the Historical Financial Statements, (ii) copies of the monthly reporting package to Page 69 be provided under the Merger Agreement, (iii) pro forma consolidated balance sheets satisfactory to Agents with respect to Holdings and its Subsidiaries for the Fiscal Year ended December 31, 1999 and with respect to the most recently ended Fiscal Quarter and month, and reflecting the consummation of the Acquisition and all other acquisitions and divestitures occurring during such periods and any other recent or pending acquisitions or divestitures as of the beginning of such periods, the related financings and the other transactions contemplated by the Credit Documents to occur on or prior to the Closing Date, which pro forma financial statements shall be in form and substance satisfactory to Administrative Agent and Syndication Agent, and (iv) the Projections. (m) EVIDENCE OF INSURANCE. Syndication Agent and Administrative Agent shall have received a certificate from Holding's insurance broker or other evidence satisfactory to it that all insurance required to be maintained pursuant to Section 5.5 is in full force and effect and that Administrative Agent, for the benefit of Lenders has been named as additional insured and loss payee thereunder to the extent required under Section 5.5. (n) OPINION OF COUNSEL TO CREDIT PARTIES. Lenders and their respective counsel shall have received originally executed copies of the favorable written opinion of Irell & Manella LLP, counsel for Credit Parties, in the form of Exhibit D and as to such other matters as Administrative Agent or Syndication Agent may reasonably request, dated as of the Closing Date and otherwise in form and substance reasonably satisfactory to Administrative Agent and Syndication Agent. (o) OPINION OF COUNSEL TO SYNDICATION AGENT. Lenders shall have received originally executed copies of the favorable written opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Syndication Agent, dated as of the Closing Date, in form and substance reasonably satisfactory to Syndication Agent and Administrative Agent. (p) FEES. Company shall have paid to Syndication Agent and Administrative Agent, the fees payable on the Closing Date referred to in Section 2.10(d). (q) SOLVENCY CERTIFICATE; SOLVENCY APPRAISAL. On the Closing Date, Syndication Agent and Administrative Agent shall have received (i) a Solvency Certificate from Company and (ii) an opinion from Valuation Research, Inc. an independent valuation consultant satisfactory to Syndication Agent and Administrative Agent, each dated the Closing Date and addressed to Syndication Agent, Administrative Agent and Lenders, and in form, scope and substance satisfactory to Syndication Agent and Administrative Agent, with appropriate attachments and demonstrating that after giving effect to the consummation of the Acquisition and the related transactions contemplated thereby, Company and its Subsidiaries are and will be Solvent. (r) CLOSING DATE CERTIFICATE. Holdings and Company shall have delivered to Syndication Agent and Administrative Agent an originally executed Closing Date Certificate, together with all attachments thereto. (s) CLOSING DATE. Lenders shall have made the Term Loans to Company on or before September 20, 2000. Page 70 (t) NO LITIGATION. There shall not exist any action, suit, investigation, litigation or proceeding or other legal or regulatory developments, pending or threatened in any court or before any arbitrator or Governmental Authority that, in the reasonable opinion of Administrative Agent and Syndication Agent, singly or in the aggregate, materially impairs the Acquisition, the financing thereof or any other transactions contemplated by the Credit Documents or the Related Documents, or that could have a Material Adverse Effect. (u) COMPLETION OF PROCEEDINGS. All partnership, corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Administrative Agent or Syndication Agent and its counsel shall be satisfactory in form and substance to Administrative Agent and Syndication Agent and such counsel, and Administrative Agent, Syndication Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Administrative Agent or Syndication Agent may reasonably request. Each Lender, by delivering its signature page to this Agreement and funding a Loan on the Closing Date, shall be deemed to have acknowledged receipt of, and consented to and approved, each Credit Document and each other document required to be approved by any Agent, Requisite Lenders or Lenders, as applicable on the Closing Date. Each Lender, by delivering its signature page to this Agreement and funding a Loan on the Closing Date, shall be deemed to have acknowledged receipt of, and consented to and approved, each Credit Document and each other document required to be approved by any Agent, Requisite Lenders or Lenders, as applicable on the Closing Date. 3.2. CONDITIONS TO EACH CREDIT EXTENSION. (a) CONDITIONS PRECEDENT. The obligation of each Lender to make any Loan on any Credit Date, including the Closing Date, are subject to the satisfaction, or waiver in accordance with Section 10.5, of the following conditions precedent (i) Administrative Agent shall have received a fully executed and delivered Funding Notice; (ii) after making the Credit Extensions requested on such Credit Date, (y) the Total Utilization of Revolving Commitments shall not exceed the Revolving Commitments then in effect and (z) with respect to Revolving Loans used to finance Permitted Acquisitions, after making the Credit Extensions on such Credit Date, Company shall have $10,000,000 of unutilized Revolving Commitments available and the Senior Leverage Ratio determined on a pro forma basis as of the last day of the Fiscal Quarter most recently ended and giving effect to the Permitted Acquisition as of such date shall be not greater than the ratio specified in Section 6.8 with respect to such date LESS (a) 0.25 with respect to acquisitions made by Company within the first six full Fiscal Quarters immediately following the Closing Date and (b) 0.125 with respect to acquisitions made by Company after the sixth full Fiscal Quarter immediately following the Closing Date. (iii) as of such Credit Date, the representations and warranties contained herein and in the other Credit Documents shall be true and correct in all material Page 71 respects on and as of that Credit Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date; and (iv) as of such Credit Date, no event shall have occurred and be continuing or would result from the consummation of the applicable Credit Extension that would constitute an Event of Default or a Default. (v) NOTICES. Any Notice shall be executed by an Authorized Officer in a writing delivered to Administrative Agent. In lieu of delivering a Notice, Company may give Administrative Agent telephonic notice by the required time of any proposed borrowing or conversion/continuation, as the case may be; PROVIDED each such notice shall be promptly confirmed in writing by delivery of the applicable Notice to Administrative Agent on or before the applicable date of borrowing or continuation/conversion. Neither Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized on behalf of Company or for otherwise acting in good faith. SECTION 4. REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Agreement and to make each Credit Extension to be made thereby, each Credit Party represents and warrants to each Lender, on the Closing Date and on each Credit Date, that the following statements are true and correct (it being understood and agreed that the representations and warranties made on the Closing Date are deemed to be made concurrently with the consummation of Acquisition contemplated hereby): 4.1. ORGANIZATION; REQUISITE POWER AND AUTHORITY; QUALIFICATION. Each of Holdings and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as identified in Schedule 4.1, (b) has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Credit Documents to which it is a party and to carry out the transactions contemplated thereby, and (c) is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, except in jurisdictions where the failure to be so qualified or in good standing has not had, and could not be reasonably expected to have, a Material Adverse Effect. 4.2. CAPITAL STOCK AND OWNERSHIP. The Capital Stock of each of Holdings and its Subsidiaries has been duly authorized and validly issued and is fully paid and non-assessable. Except as set forth on Schedule 4.2, as of the date hereof, there is no existing option, warrant, call, right, commitment or other agreement to which Holdings or any of its Subsidiaries is a party requiring, and there is no membership interest or other Capital Stock of Holdings or any of its Subsidiaries outstanding which upon conversion or exchange would require, the issuance by Holdings or any of its Subsidiaries of any additional membership interests or other Capital Stock of Holdings or any of its Subsidiaries or other Securities convertible into, exchangeable for or evidencing the right to subscribe for or purchase, a membership interest or other Capital Stock of Holdings or any of its Subsidiaries. Schedule 4.2 correctly sets forth the ownership interest of Page 72 Holdings and each of its Subsidiaries in their respective Subsidiaries as of the Closing Date both before and after giving effect to the Acquisition. 4.3. DUE AUTHORIZATION. The execution, delivery and performance of the Credit Documents have been duly authorized by all necessary action on the part of each Credit Party that is a party thereto. 4.4. NO CONFLICT. The execution, delivery and performance by Credit Parties of the Credit Documents to which they are parties and the consummation of the transactions contemplated by the Credit Documents do not and will not (a) violate any provision of any law or any governmental rule or regulation applicable to Holdings or any of its Subsidiaries, any of the Organizational Documents of Holdings or any of its Subsidiaries, or any order, judgment or decree of any court or other agency of government binding on Holdings or any of its Subsidiaries except to the extent such violation could not be reasonably expected to have a Material Adverse Effect; (b) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Holdings or any of its Subsidiaries except to the extent such conflict, breach or default could not reasonably be expected to have a Material Adverse Effect; (c) result in or require the creation or imposition of any Lien upon any of the properties or assets of Holdings or any of its Subsidiaries (other than any Liens created under any of the Credit Documents in favor of Collateral Agent, on behalf of Secured Parties); or (d) require any approval of stockholders, members or partners or any approval or consent of any Person under any Contractual Obligation of Holdings or any of its Subsidiaries, except for such approvals or consents which will be obtained on or before the Closing Date and disclosed in writing to Lenders and except for any such approvals or consents the failure of which to obtain will not have a Material Adverse Effect. 4.5. GOVERNMENTAL CONSENTS. The execution, delivery and performance by Credit Parties of the Credit Documents to which they are parties and the consummation of the transactions contemplated by the Credit Documents do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any Governmental Authority except as otherwise set forth in the Merger Agreement, and except for filings and recordings with respect to the Collateral to be made, or otherwise delivered to Collateral Agent for filing and/or recordation, as of the Closing Date. 4.6. BINDING OBLIGATION. Each Credit Document has been duly executed and delivered by each Credit Party that is a party thereto and is the legally valid and binding obligation of such Credit Party, enforceable against such Credit Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. 4.7. HISTORICAL FINANCIAL STATEMENTS. The Historical Financial Statements were prepared in conformity with GAAP and fairly present, in all material respects, the financial position, on a consolidated basis, of the Persons described in such financial statements as at the respective dates thereof and the results of operations and cash flows, on a consolidated basis, of the entities described therein for each of the periods then ended, subject, in the case of any such unaudited financial statements, to changes resulting from audit and normal year-end adjustments. Page 73 As of the Closing Date, neither Holdings nor any of its Subsidiaries has any contingent liability or liability for taxes, long-term lease or unusual forward or long-term commitment that is not reflected in the Historical Financial Statements or the notes thereto and which in any such case is material in relation to the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings and any of its Subsidiaries taken as a whole. 4.8. PROJECTIONS. On and as of the Closing Date, the Projections of Holdings and its Subsidiaries for the period Fiscal Year 2001 through and including Fiscal Year 2010 (the "PROJECTIONS") are based on good faith estimates and assumptions made by the management of Holdings; PROVIDED, the Projections am not to be viewed as facts and that actual results during the period or periods covered by the Projections may differ from such Projections and that the differences may be material; PROVIDED FURTHER, as of the Closing Date, management of Holdings believed that the Projections were reasonable and attainable. 4.9. NO MATERIAL ADVERSE CHANGE. Since December 31, 1999, no event or change has occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect. 4.10. NO RESTRICTED JUNIOR PAYMENTS. Except as set forth in Schedule 4.10, since December 31, 1999, neither Holdings nor any of its Subsidiaries has directly or indirectly declared, ordered, paid or made, or set apart any sum or property for, any Restricted Junior Payment or agreed to do so except as permitted pursuant to Section 6.5. 4.11. ADVERSE PROCEEDINGS, ETC. There are no Adverse Proceedings, individually or in the aggregate, that could reasonably be expected to have a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries (a) is in violation of any applicable laws (including Environmental Laws) that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, or (b) is subject to or in default with respect to any final judgments, writs, injunctions, decrees, rules or regulations of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 4.12. PAYMENT OF TAXES. Except as otherwise permitted under Section 5.3, all federal and state income tax returns and all other material tax returns and reports of Holdings and its Subsidiaries required to be filed by any of them have been timely filed, and all taxes shown on such tax returns to be due and payable and all material assessments, fees and other governmental charges upon Holdings and its Subsidiaries and upon their respective properties, assets, income, businesses and franchises which are due and payable have been paid when due and payable. Holdings knows of no proposed tax assessment against Holdings or any of its Subsidiaries which is not being actively contested by Holdings or such Subsidiary in good faith and by appropriate proceedings; PROVIDED, such reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor. Page 74 4.13. PROPERTIES. (a) TITLE. Each of Holdings and its Subsidiaries has (i) good, sufficient and marketable legal title to (in the case of fee interests in real property), (ii) valid leasehold interests in (in the case of leasehold interests in real or personal property), and (iii) good title to (in the case of all other personal property), all of their respective properties and assets reflected in their respective Historical Financial Statements referred to in Section 4.7 and in the most recent financial statements delivered pursuant to Section 5.1, in each case except for assets disposed of since the date of such financial statements in the ordinary course of business or as otherwise permitted under Section 6.9. Except as permitted by this Agreement, all such properties and assets are free and clear of Liens. (b) REAL ESTATE. As of the Closing Date, Schedule 4.13 contains a true, accurate and complete list of (i) all Real Estate Assets, and (ii) all leases, subleases or assignments of leases (together with all amendments, modifications, supplements, renewals or extensions of any thereof) affecting each Real Estate Asset of any Credit Party, regardless of whether such Credit Party is the landlord or tenant (whether directly or as an assignee or successor in interest) under such lease, sublease or assignment. Each agreement listed in clause (ii) of the immediately preceding sentence is in full force and effect and Holdings does not have knowledge of any default that has occurred and is continuing thereunder, and each such agreement constitutes the legally valid and binding obligation of each applicable Credit Party, enforceable against such Credit Party in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles. 4.14. ENVIRONMENTAL MATTERS. Neither Holdings nor any of its Subsidiaries nor any of their respective Facilities or operations are subject to any outstanding written order, consent decree or settlement agreement with any Person relating to any Environmental Law, any Environmental Claim, to the knowledge of Holdings or any of its Subsidiaries, or any Hazardous Materials Activity that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries has received any letter or request for information under Section 104 of the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. ss.9604) or any comparable state law. There are and, to each of Holdings' and its Subsidiaries' knowledge, have been, no conditions, occurrences, or Hazardous Materials Activities which could reasonably be expected to form the basis of an Environmental Claim against Holdings or any of its Subsidiaries that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries nor, to any Credit Party's knowledge, any predecessor of Holdings or any of its Subsidiaries has filed any notice under any Environmental Law indicating past or present treatment of Hazardous Materials at any Facility, and none of Holdings' or any of its Subsidiaries' operations involves the generation, transportation, treatment, storage or disposal of hazardous waste, as defined under 40 C.F.R. Parts 260-270 or any state equivalent except for such filings, generation, transportation, treatment, storage or disposal that could not reasonably be expected to have a Material Adverse Effect. Compliance with all current or reasonably foreseeable future requirements pursuant to or under Environmental Laws could not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. No event or condition has occurred or is occurring with respect to Holdings or any of its Subsidiaries Page 75 relating to any Environmental Law, any Release of Hazardous Materials, or any Hazardous Materials Activity which individually or in the aggregate has had, or could reasonably be expected to have, a Material Adverse Effect. 4.15. NO DEFAULTS. Neither Holdings nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any of its Contractual Obligations, and no condition exists which, with the giving of notice or the lapse of time or both, could constitute such a default, except where the consequences, direct or indirect, of such default or defaults, if any, could not reasonably be expected to have a Material Adverse Effect. 4.16. GOVERNMENTAL REGULATION. Neither Holdings nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or the Investment Company Act of 1940 or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable. Neither Holdings nor any of its Subsidiaries is a "registered investment company" or is "controlled" by a "registered investment company" or a "principal underwriter" of a "registered investment company" as such terms are defined in the Investment Company Act of 1940. 4.17. MARGIN STOCK. Neither Holdings nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. No part of the proceeds of the Loans made to such Credit Party will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock or for any purpose that violates, or is inconsistent with, the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System. 4.18. EMPLOYEE MATTERS. Neither Holdings nor any of its Subsidiaries is engaged in any unfair labor practice that could reasonably be expected to have a Material Adverse Effect. There is (a) no unfair labor practice complaint pending against Holdings or any of its Subsidiaries, or to the best knowledge of Holdings and Company, threatened against any of them before the National Labor Relations Board and no grievance or arbitration proceeding arising out of or under any collective bargaining agreement that is so pending against Holdings or any of its Subsidiaries or to the best knowledge of Holdings and Company, threatened against any of them, (b) no strike or work stoppage in existence or threatened involving Holdings or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect, and (c) to the best knowledge of Holdings and Company, no union representation question existing with respect to the employees of Holdings or any of its Subsidiaries and, to the best knowledge of Holdings and Company, no union organization activity that is taking place, except (with respect to any matter specified in clause (a), (b) or (c) above, either individually or in the aggregate) such as is not reasonably likely to have a Material Adverse Effect. 4.19. EMPLOYEE BENEFIT PLANS. Holdings, each of its Subsidiaries and each of their respective ERISA Affiliates are in material compliance with all applicable provisions and requirements of ERISA and the Internal Revenue Code and the regulations and published interpretations thereunder with respect to each Employee Benefit Plan, and have substantially Page 76 performed all their obligations under each Employee Benefit Plan. Each Employee Benefit Plan which is intended to qualify under Section 401(a) of the Internal Revenue Code has substantially met requirements for qualification. No material liability to the PBGC (other than required premium payments), the Internal Revenue Service, any Employee Benefit Plan or any Trust established under Title IV of ERISA has been or is expected to be incurred by Holdings, any of its Subsidiaries or any of their ERISA Affiliates. No ERISA Event has occurred or is reasonably expected to occur. Except to the extent required under Section 4980B of the Internal Revenue Code or similar state laws, no Employee Benefit Plan provides health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employee of Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates. As of the most recent valuation date for any Pension Plan, the amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA), individually or in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), does not exceed $3,500,000. As of the most recent valuation date for each Multiemployer Plan for which the actuarial report is available, the potential liability of Holdings, its Subsidiaries and their respective ERISA Affiliates for a complete withdrawal from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when aggregated with such potential liability for a complete withdrawal from all Multiemployer Plans, based on information available pursuant to Section 4221(e) of ERISA, does not exceed $3,500,000. Holdings, each of its Subsidiaries and each of their ERISA Affiliates have complied with the requirements of Section 515 of ERISA with respect to each Multiemployer Plan and are not in material "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan. 4.20. CERTAIN FEES. No broker's or finder's fee or commission will be payable with respect hereto or any of the transactions contemplated hereby, except those broker's and finder's fees otherwise disclosed to the Agents prior to the Closing Date. 4.21. SOLVENCY. Each Credit Party is and, upon the incurrence of any Obligation by such Credit Party on any date on which this representation and warranty is made, will be, Solvent. 4.22. RELATED AGREEMENTS. (a) DELIVERY. Holdings and Company have delivered to Syndication Agent and Administrative Agent complete and correct copies of (i) each Related Agreement and of all exhibits and schedules thereto as of the date hereof and (ii) copies of any material amendment, restatement, supplement or other modification to or waiver of each Related Agreement entered into after the date hereof. (b) REPRESENTATIONS AND WARRANTIES. Except to the extent otherwise expressly set forth herein or in the schedules hereto, and subject to the qualifications set forth therein, each of the representations and warranties given by any Credit Party in any Related Agreement is true and correct in all material respects as of the Closing Date (or as of any earlier date to which such representation and warranty specifically relates). Notwithstanding anything in any Related Agreement to the contrary, the representations and warranties of each Credit Party set forth in this Section 4.23 shall, solely for purposes hereof, survive the Closing Date for the benefit of Lenders. Page 77 (c) GOVERNMENTAL APPROVAL. All Governmental Authorizations and all other authorizations, approvals and consents of any other Person required by the Related Agreements or to consummate the Acquisition have been obtained and are in full force and effect. (d) CONDITIONS PRECEDENT. On the Closing Date, (i) all of the conditions to effecting or consummating the Acquisition set forth in the Related Agreements have been duly satisfied or, with the consent of Administrative Agent and Requisite Lenders, waived, and (ii) the Acquisition has been consummated in accordance with the Related Agreements and all applicable laws. 4.23. SUBORDINATION OF PERMITTED SELLER NOTES AND SENIOR SUBORDINATED NOTE DOCUMENTS. The subordination provisions of any Permitted Seller Notes, the Senior Subordinated Note Documents or other Subordinated Indebtedness are enforceable against the holders thereof, and the Loans and other Obligations thereunder are and will be within the definition of "Subordinated Indebtedness" or "Subordinated Debt", or similar term, as applicable, included in such provisions. 4.24. COMPLIANCE WITH STATUTES, ETC. Each of Holdings and its Subsidiaries is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all Governmental Authorities, in respect of the conduct of its business and the ownership of its property (including compliance with all applicable Environmental Laws with respect to any Real Estate Asset or governing its business and the requirements of any permits issued under such Environmental Laws with respect to any such Real Estate Asset or the operations of Holdings or any of its Subsidiaries), except such non-compliance that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. 4.25. DISCLOSURE. No representation or warranty of any Credit Party contained in any Credit Document or in any other documents, certificates or written statements furnished to Lenders by or on behalf of Holdings or any of its Subsidiaries for use in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact (known to Holdings or Company, in the case of any document not furnished by either of them) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. Any projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by Holdings or Company to be reasonable at the time made, it being recognized by Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. There are no facts known (or which should upon the reasonable exercise of diligence be known) to Holdings or Company (other than matters of a general economic nature) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect and that have not been disclosed herein or in such other documents, certificates and statements furnished to Lenders for use in connection with the transactions contemplated hereby. Page 78 SECTION 5. AFFIRMATIVE COVENANTS Each Credit Party covenants and agrees that so long as any Commitment is in effect and until payment in full of all Obligations, each Credit Party shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 5. 5.1. FINANCIAL STATEMENTS AND OTHER REPORTS. Holdings will deliver to Administrative Agent and Lenders: (a) MONTHLY REPORTS. As soon as available, and in any event within forty-five (45) days after the end of each month ending after the Closing Date, the consolidated balance sheet of Holdings and its Subsidiaries as at the end of such month and the related consolidated statements of income, stockholders' equity and cash flows of Holdings and its Subsidiaries for such month and for the period from the beginning of the then current Fiscal Year to the end of such month, setting forth in each case in comparative form (other than with respect to cash flows) the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the Financial Plan for the current Fiscal Year, to the extent prepared on a monthly basis, all in reasonable detail, together with a Financial Officer Certification and a Narrative Report with respect thereto; (b) QUARTERLY FINANCIAL STATEMENTS. As soon as available, and in any event within forty-five (45) days after the end of each of the first three Fiscal Quarters of each Fiscal Year, the consolidated balance sheet of Holdings and its Subsidiaries as at the end of such Fiscal Quarter and the related consolidated statements of income, stockholders' equity and cash flows of Holdings and its Subsidiaries for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the Financial Plan for the current Fiscal Year, all in reasonable detail, together with a Financial Officer Certification and a Narrative Report with respect thereto; (c) ANNUAL FINANCIAL STATEMENTS. As soon as available, and in any event within ninety (90) days after the end of each Fiscal Year, (i) the consolidated balance sheet of Holdings and its Subsidiaries as at the end of such Fiscal Year and the related consolidated statements of income, stockholders' equity and cash flows of Holdings and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year and the corresponding figures from the Financial Plan for the Fiscal Year covered by such financial statements, in reasonable detail, together with a Financial Officer Certification and a Narrative Report with respect thereto; and (ii) with respect such consolidated financial statements a report thereon of independent certified public accountants of recognized national standing selected by Holdings, and reasonably satisfactory to Administrative Agent (which report shall be unqualified as to going concern and scope of audit, and shall state that such consolidated financial statements fairly present, in all material respects, the consolidated financial position of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise disclosed in such financial statements) and that the examination by such accountants in connection with such consolidated financial Page 79 statements has been made in accordance with generally accepted auditing standards) together with a written statement by such independent certified public accountants stating whether, in connection with their audit examination, any condition or event that constitutes a Default or an Event of Default under Section 8 hereof has come to their attention and, if such a condition or event has come to their attention, specifying the nature and period of existence thereof; PROVIDED that such accountants shall not be liable by reason of any failure to obtain knowledge of any such Default or Event of Default that would not be disclosed in the course of their audit examination; (d) COMPLIANCE CERTIFICATE. Together with each delivery of financial statements of Holdings and its Subsidiaries pursuant to Sections 5.1(b) and 5.1(c), a duly executed and completed Compliance Certificate; (e) STATEMENTS OF RECONCILIATION AFTER CHANGE IN ACCOUNTING PRINCIPLES. If, as a result of any change in accounting principles and policies from those used in the preparation of the Historical Financial Statements, the consolidated financial statements of Holdings and its Subsidiaries delivered pursuant to Section 5.1(b) or 5.1(c) will differ in any material respect from the consolidated financial statements that would have been delivered pursuant to such subdivisions had no such change in accounting principles and policies been made, then, together with the first delivery of such financial statements after such change, one or more statements of reconciliation for all such prior financial statements in form and substance satisfactory to Administrative Agent; (f) NOTICE OF DEFAULT. Promptly upon any officer of Holdings or Company obtaining knowledge (i) of any condition or event that constitutes a Default or an Event of Default or that notice has been given to Holdings or Company with respect thereto; (ii) that any Person has given any notice to Holdings or any of its Subsidiaries or taken any other action with respect to any event or condition set forth in Section 8.1(b); or (iii) of the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, a certificate of its Authorized Officers specifying the nature and period of existence of such condition, event or change, or specifying the notice given and action taken by any such Person and the nature of such claimed Event of Default, Default, default, event or condition, and what action Holdings has taken, is taking and proposes to take with respect thereto; (g) NOTICE OF LITIGATION. Promptly upon any officer of Holdings or Company obtaining knowledge of (i) the institution of, or non-frivolous threat of, any Adverse Proceeding not previously disclosed in writing by Company to Lenders, or (ii) any material development in any Adverse Proceeding that, in the case of either (i) or (ii) if adversely determined, could be reasonably expected to have a Material Adverse Effect, or seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby, written notice thereof together with such other information as may be reasonably available to Holdings or Company to enable Lenders and their counsel to evaluate such matters; (h) ERISA. (i) Promptly upon becoming aware of the occurrence any ERISA Event, a written notice specifying the nature thereof, what action Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates has taken, is taking or proposes to take Page 80 with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; and (ii) with reasonable promptness, copies of (1) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates with the Internal Revenue Service with respect to each Pension Plan; (2) all notices received by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates from a Multiemployer Plan sponsor concerning an ERISA Event; and (3) copies of such other documents or governmental reports or filings relating to any Employee Benefit Plan as Administrative Agent shall reasonably request; (i) FINANCIAL PLAN. As soon as practicable and in any event no later than thirty (30) days after the beginning of each Fiscal Year, a consolidated plan and financial forecast for such Fiscal Year and the next three succeeding Fiscal Years (a "FINANCIAL PLAN"), including (i) a forecasted consolidated balance sheet and forecasted consolidated statements of income and cash flows of Holdings and its Subsidiaries for each such Fiscal Year, together with pro forma Compliance Certificates for each such Fiscal Year and an explanation of the assumptions on which such forecasts are based and (ii) forecasted consolidated statements of income and cash flows of Holdings and its Subsidiaries for each month of each such Fiscal Year, together with an explanation of the assumptions on which such forecasts are based; (j) INSURANCE REPORT. As soon as practicable and in any event by the last day of each Fiscal Year, a report in form and substance satisfactory to Administrative Agent outlining all material insurance coverage maintained as of the date of such report by Holdings and its Subsidiaries and all material insurance coverage planned to be maintained by Holdings and its Subsidiaries in the immediately succeeding Fiscal Year; (k) NOTICE OF CHANGE IN BOARD OF DIRECTORS. With reasonable promptness, written notice of any change in the board of directors (or similar governing body) of Holdings or Company; (l) NOTICE REGARDING MATERIAL CONTRACTS. Promptly, and in any event within ten (10) Business Days (i) after any Material Contract of Holdings or any of its Subsidiaries is terminated or amended in a manner that is materially adverse to Holdings or such Subsidiary, as the case may be, or (ii) any new Material Contract is entered into, a written statement describing such event, with copies of such material amendments or new contracts, delivered to Administrative Agent (to the extent such delivery is permitted by the terms of any such Material Contract, provided, no such prohibition on delivery shall be effective if it were bargained for by Holdings or its applicable Subsidiary with the intent of avoiding compliance with this Section 5.1 (1)), and an explanation of any actions being taken with respect thereto; (m) ENVIRONMENTAL REPORTS AND AUDITS. As soon as practicable following receipt thereof, copies of all environmental audits and reports with respect to environmental matters at any Facility or which relate to any environmental liabilities of Holdings or its Subsidiaries which, in any such case, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect; Page 81 (n) INFORMATION REGARDING COLLATERAL. The Company will furnish to the Collateral Agent prompt written notice of any change (i) in any Credit Party's corporate name, (ii) in the location of any Credit Party's chief executive office, its principal place of business, any office in which it maintains books or records relating to Collateral owned by it or any office or facility at which Collateral (other than real property and improvements and fixtures thereto) owned by it with a book value in excess of $250,000 is located (including the establishment of any such new office or facility), (iii) in any Credit Party's identity or corporate structure or (iv) in any Credit Party's Federal Taxpayer Identification Number. The Company agrees not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the Uniform Commercial Code or otherwise that are required in order for the Collateral Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Collateral and for the Collateral at all times following such change to have a valid, legal and perfected security interest as contemplated in the Collateral Documents. The Company also agrees promptly to notify the Collateral Agent if any material portion of the Collateral is damaged or destroyed; (o) ANNUAL COLLATERAL VERIFICATIONS. Each year, at the time of delivery of annual financial statements with respect to the preceding Fiscal Year pursuant to Section 5.1, the Company shall deliver to the Collateral Agent an Officer's Certificate (i) either confirming that there has been no change in such information since the date of the UCC Questionnaire delivered on the Closing Date or the date of the most recent certificate delivered pursuant to this Section and/or identifying such changes and (ii) certifying that all Uniform Commercial Code financing statements (including fixtures filings, as applicable) or other appropriate filings, recordings or registrations, have been filed of record in each governmental, municipal or other appropriate office in each jurisdiction identified pursuant to clause (i) above to the extent necessary to protect and perfect the security interests under the Collateral Documents for a period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period); and (p) OTHER INFORMATION. (A) Promptly upon their becoming available, copies of (i) all financial statements, reports, notices and proxy statements sent or made available generally by Holdings to its security holders acting in such capacity or by any Subsidiary of Holdings to its security holders other than Holdings or another Subsidiary of Holdings, (ii) all regular and periodic reports and all registration statements and prospectuses, if any, filed by Holdings or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any governmental or private regulatory authority, (iii) all press releases and other statements made available generally by Holdings or any of its Subsidiaries to the public concerning material developments in the business of Holdings or any of its Subsidiaries, and (B) such other information and data with respect to Holdings or any of its Subsidiaries as from time to time may be reasonably requested by Administrative Agent or any Lender. 5.2. EXISTENCE. Except as otherwise permitted under Section 6.9, each Credit Party will, and will cause each of its Subsidiaries to, at all times preserve and keep in full force and effect its existence and all rights and franchises, licenses and permits material to its business; PROVIDED, no Credit Party or any of its Subsidiaries shall be required to preserve any such existence, right or franchise, licenses and permits if such Person's board of directors (or similar governing body) shall determine that the preservation thereof is no longer desirable in the Page 82 conduct of the business of such Person, and that the loss thereof is not disadvantageous in any material respect to such Person or to Lenders. 5.3. PAYMENT OF TAXES AND CLAIMS. Each Credit Party will, and will cause each of its Subsidiaries to, pay all Taxes imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty or fine accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; PROVIDED no such Tax or claim need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as (a) an adequate reserve or other appropriate provision, as shall be required in conformity with GAAP shall have been made therefor, and (b) in the case of a charge or claim which has or may become a Lien against any of the Collateral, such contest proceedings conclusively operate to stay the sale of any portion of the Collateral to satisfy such Tax or claim. No Credit Party will, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income Tax return with any Person (other than Holdings or any of its Subsidiaries). 5.4. MAINTENANCE OF PROPERTIES. Each Credit Party will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear excepted, all material properties used or useful in the business of Holdings and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof, and each Credit Party shall defend any Collateral against all Persons at any time claiming any interest therein. 5.5. INSURANCE. Holdings will maintain or cause to be maintained, with financially sound and reputable insurers, such public liability insurance, third party property damage insurance, business interruption insurance and casualty insurance with respect to liabilities, losses or damage in respect of the assets, properties and businesses of Holdings and its Subsidiaries as may customarily be carried or maintained under similar circumstances by Persons of established reputation engaged in similar businesses, in each case in such amounts (giving effect to self-insurance), with such deductibles, covering such risks and otherwise on such terms and conditions as shall be customary for such Persons. Without limiting the generality of the foregoing, Holdings will maintain or cause to be maintained (a) flood insurance with respect to each Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, in each case in compliance with any applicable regulations of the Board of Governors of the Federal Reserve System, and (b) replacement value casualty insurance on the Collateral under such policies of insurance, with such insurance companies, in such amounts, with such deductibles, and covering such risks as are at all times carried or maintained under similar circumstances by Persons of established reputation engaged in similar businesses. Each such policy of insurance shall (i) name Administrative Agent, on behalf of Lenders as an additional insured thereunder as its interests may appear and (ii) in the case of each casualty insurance policy, contain a loss payable clause or endorsement, satisfactory in form and substance to Administrative Agent, that names Administrative Agent, on behalf of Lenders as the loss payee thereunder. Page 83 5.6. INSPECTIONS. Each Credit Party will, and will cause each of its Subsidiaries to, permit any authorized representatives designated by any Lender to visit and inspect any of the properties of any Credit Party and any of its respective Subsidiaries, to inspect, copy and take extracts from its and their financial and accounting records, and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants, all upon reasonable notice and at such reasonable times during normal business hours and as often as may reasonably be requested; PROVIDED, that each Lender shall coordinate with Administrative Agent with respect to the frequency and timing of such visits and inspections so as to reasonably minimize the burden imposed on each Credit Party and its Subsidiaries. 5.7. LENDERS MEETINGS. Holdings and Company will, upon the request of Administrative Agent or Requisite Lenders, participate in a meeting of Administrative Agent and Lenders once during each Fiscal Year to be held at Company's corporate offices (or at such other location as may be agreed to by Company and Administrative Agent) at such time as may be agreed to by Company and Administrative Agent. 5.8. COMPLIANCE WITH LAWS. Each Credit Party will comply, and shall cause each of its Subsidiaries and all other Persons, if any, on or occupying any Facilities to comply, with the requirements of all applicable laws, rules, regulations and orders of any governmental authority (including all Environmental Laws), noncompliance with which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. 5.9. ENVIRONMENTAL. (a) ENVIRONMENTAL DISCLOSURE. Holdings will deliver to Administrative Agent and Lenders: (i) as soon as practicable following receipt thereof, copies of all environmental audits, investigations, analyses and reports of any kind or character, whether prepared by personnel of Holdings or any of its Subsidiaries or by independent consultants, governmental authorities or any other Persons, with respect to significant environmental matters at any Facility or with respect to any known Environmental Claims; (ii) promptly upon the occurrence thereof, written notice describing in reasonable detail (1) any Release required to be reported to any federal, state or local governmental or regulatory agency under any applicable Environmental Laws, (2) any remedial action taken by Holdings or any other Person in response to (A) any Hazardous Materials Activities the existence of which has a reasonable possibility of resulting in one or more Environmental Claims having, individually or in the aggregate, a Material Adverse Effect, or (B) any Environmental Claims that, individually or in the aggregate, have a reasonable possibility of resulting in a Material Adverse Effect, and (3) Holdings or Company's discovery of any occurrence or condition on any real property adjoining or in the vicinity of any Facility that could cause such Facility or any part thereof to be subject to any material restrictions on the ownership, occupancy, transferability or use thereof under any Environmental Laws; (iii) as soon as practicable following the sending or receipt thereof by Holdings or any of its Subsidiaries, a copy of any and all material written communications with Page 84 respect to (1) any Environmental Claims that, individually or in the aggregate, have a reasonable possibility of giving rise to a Material Adverse Effect, (2) any Release required to be reported to any federal, state or local governmental or regulatory agency, and (3) any request for information from any governmental agency that suggests such agency is investigating whether Holdings or any of its Subsidiaries may be potentially responsible for any Hazardous Materials Activity that has a reasonable possibility of giving rise to a Material Adverse Effect; (iv) prompt written notice describing in reasonable detail (1) any proposed acquisition of stock, assets, or property by Holdings or any of its Subsidiaries that could reasonably be expected to (A) expose Holdings or any of its Subsidiaries to, or result in, Environmental Claims that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or (B) affect the ability of Holdings or any of its Subsidiaries to maintain in full force and effect all material Governmental Authorizations required under any Environmental Laws for their respective operations and (2) any proposed action to be taken by Holdings or any of its Subsidiaries to modify current operations in a manner that could reasonably be expected to subject Holdings or any of its Subsidiaries to any additional material obligations or requirements under any Environmental Laws; and (v) with reasonable promptness, such other documents and information as from time to time may be reasonably requested by Administrative Agent in relation to any matters disclosed pursuant to this Section 5.9(a). (b) HAZARDOUS MATERIALS ACTIVITIES, ETC. Each Credit Party shall promptly take, and shall cause each of its Subsidiaries promptly to take, any and all actions necessary to (i) cure any violation of applicable Environmental Laws by such Credit Party or its Subsidiaries that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, and (ii) make an appropriate response to any known Environmental Claim against such Credit Party or any of its Subsidiaries where failure to do so could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; PROVIDED, HOWEVER, that nothing in this Section 5.9(b) shall preclude any Credit Party or any of its Subsidiaries from contesting in good faith any such Environmental Claim. 5.10. SUBSIDIARIES. In the event that any Person becomes a Domestic Subsidiary of Company, Company shall, except with respect to Permitted Partially-Owned Subsidiaries, (a) promptly cause such Domestic Subsidiary to become a Guarantor hereunder and a Grantor under the Pledge and Security Agreement by executing and delivering to Administrative Agent and Collateral Agent a Counterpart Agreement, and (b) take all such actions and execute and deliver, or cause to be executed and delivered, all such documents, instruments, agreements, and certificates as are similar to those described in Sections 3.1(b), 3.1(i) and 3.1(j), and to the extent reasonably requested by Administrative Agent, such documents, instruments, agreements, and certificates as are similar to those described in Sections 3.1(k) and 3.1(n). In the event that any Person becomes a Foreign Subsidiary of Company, and the ownership interests of such Foreign Subsidiary are owned by Company or by any Domestic Subsidiary thereof, Company shall, or shall cause such Domestic Subsidiary to, deliver, all such documents, instruments, agreements, and certificates as are similar to those described in Sections 3.1(b), and Company shall take, or shall cause such Domestic Subsidiary to take, all of the actions referred to in Section 3.1(j)(i) necessary to grant and to perfect a First Priority Lien in favor of Administrative Agent, for the Page 85 benefit of Secured Parties, under the Pledge and Security Agreement in not more than 65% of such ownership interests. With respect to each such Subsidiary, Company shall promptly send to Administrative Agent written notice setting forth with respect to such Person (i) the date on which such Person became a Subsidiary of Company, and (ii) all of the data required to be set forth in Schedules 4.1 and 4.2 with respect to all Subsidiaries of Company; PROVIDED, such written notice shall be deemed to supplement Schedule 4.1 and 4.2 for all purposes hereof. 5.11. ADDITIONAL MATERIAL REAL ESTATE ASSETS. In the event that any Credit Party acquires a Material Real Estate Asset or a Real Estate Asset owned on the Closing Date becomes a Material Real Estate Asset and such interest has not otherwise been made subject to the Lien of the Collateral Documents in favor of Collateral Agent, for the benefit of Secured Parties, then such Credit Party, contemporaneously with acquiring such Material Real Estate Asset, shall take all such actions and execute and deliver, or cause to be executed and delivered, all such mortgages, documents, instruments, agreements, opinions and certificates similar to those described in Sections 3.1(i), 3.1(j) and 3.1(k) with respect to each such Material Real Estate Asset that Collateral Agent shall reasonably request to create in favor of Collateral Agent, for the benefit of Secured Parties, a valid and, subject to any filing and/or recording referred to herein, perfected First Priority security interest in such Material Real Estate Assets. In addition to the foregoing, Company shall, at the request of Requisite Lenders, deliver, from time to time, to Collateral Agent such appraisals as are required by law or regulation of Real Estate Assets with respect to which Collateral Agent has been granted a Lien. 5.12. INTEREST RATE PROTECTION. No later than ninety (90) days following the Closing Date and at all times thereafter, Company shall maintain, or caused to be maintained, in effect one or more Interest Rate Agreements for a term of not less than two (2) years and otherwise in form and substance reasonably satisfactory to Administrative Agent and Syndication Agent, which Interest Rate Agreements shall effectively limit the Unadjusted Eurodollar Rate Component of the interest costs to Company with respect to an aggregate notional principal amount of not less than 25% of the aggregate principal amount of the Tranche A Term Loans and the Tranche B Term Loans outstanding from time to time (based on the assumption that such notional principal amount was a Eurodollar Rate Loan with an Interest Period of three months) to a rate equal to that which is reasonably satisfactory to the Administrative Agent and the Syndication Agent. 5.13. FURTHER ASSURANCES. At any time or from time to time upon the request of Administrative Agent, each Credit Party will, at its expense, promptly execute, acknowledge and deliver such further documents and do such other acts and things as Administrative Agent or Collateral Agent may reasonably request in order to effect fully the purposes of the Credit Documents. In furtherance and not in limitation of the foregoing, each Credit Party shall take such actions as Administrative Agent or Collateral Agent may reasonably request from time to time to ensure that the Obligations are guarantied by the Guarantors and are secured by substantially all of the assets of Holdings, and its Subsidiaries and all of the outstanding Capital Stock of Company and its Subsidiaries (subject to limitations contained in the Credit Documents with respect to Foreign Subsidiaries). Page 86 SECTION 6. NEGATIVE COVENANTS Each Credit Party covenants and agrees that, so long as any Commitment is in effect and until payment in full of all Obligations, such Credit Party shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 6. 6.1. INDEBTEDNESS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, except: (a) the Obligations; (b) Indebtedness of any Guarantor Subsidiary to Company or to any other Guarantor Subsidiary, or of Company to any Guarantor Subsidiary; PROVIDED, (i) all such Indebtedness shall be evidenced by promissory notes and all such notes shall be subject to a First Priority Lien pursuant to the Pledge and Security Agreement, (ii) all such Indebtedness shall be unsecured and subordinated in right of payment to the payment in full of the Obligations pursuant to the terms of the applicable promissory notes or an intercompany subordination agreement that in any such case, is reasonably satisfactory to Administrative Agent, and (iii) any payment by any such Guarantor Subsidiary under any guaranty of the Obligations shall result in a pro tanto reduction of the amount of any Indebtedness owed by such Subsidiary to Company or to any of its Subsidiaries for whose benefit such payment is made; (c) (x) (i) Indebtedness incurred by Company with respect to the Senior Subordinated Notes and (ii) other Indebtedness incurred to refinance, in whole or in part, Indebtedness under the Senior Subordinated Notes if the terms and conditions thereof are not less favorable, taken as a whole, to the obligor thereon or to the Lenders than the Indebtedness being refinanced and the average life to maturity thereof is greater than or equal to that of the Indebtedness being refinanced; provided, such Indebtedness permitted under the immediately preceding clause (ii) above shall (A) not include Indebtedness of an obligor that was not an obligor with respect to the Indebtedness being refinanced, (B) not exceed in principal amount (or accreted value, in the case of any such refinancing Indebtedness issued with a discount) the Indebtedness (including the amount of interest and principal (and premium, if any)) being refinanced plus the amount of customary underwriting discounts, financing fees and commissions and other reasonable costs and expenses associated with the issuance thereof, (C) be subordinated to the Obligations on terms which are not less favorable, taken as a whole, to the Lenders than the corresponding terms of the Indebtedness being refinanced, and (D) not be incurred, created or assumed if any Default or Event of Default has occurred and is continuing or would result therefrom; and (y) (1) Indebtedness incurred by Holdings with respect to the Holdings Senior Notes and (ii) other Indebtedness incurred to refinance, in whole or in part, Indebtedness under the Holdings Senior Notes if the terms and conditions thereof are not less favorable, taken as a whole, to the obligor thereon or to the Lenders than the Indebtedness being refinanced and the average life to maturity thereof is greater than or equal to that of the Indebtedness being refinanced; PROVIDED, such Indebtedness permitted under the immediately preceding clause (ii) above shall (A) not include Indebtedness of an obligor that was not an obligor with respect to the Indebtedness being refinanced, (B) not exceed in principal amount (or accreted value, in the case of any such refinancing Indebtedness issued with a discount) the Page 87 Indebtedness (including the amount of interest and principal (and premium, if any)) being refinanced plus the amount of customary underwriting discounts, financing fees and commissions and other reasonable costs and expenses associated with the issuance thereof, and (C) not be incurred, created or assumed if any Default or Event of Default has occurred and is continuing or would result therefrom; (d) Indebtedness incurred by Holdings pursuant to Section 6.5(a); PROVIDED, that such Indebtedness shall be unsecured and subordinated in right of payment to the payment in full of the Obligations pursuant to the terms of the applicable promissory notes or an intercompany subordination agreement that in any such case, is reasonably satisfactory to Administrative Agent; (e) Indebtedness incurred by Holdings or any of its Subsidiaries arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guaranties or letters of credit, surety bonds or performance bonds securing the performance of the Company or any such Subsidiary pursuant to such agreements, in connection with Permitted Acquisitions or permitted dispositions of any business, assets or Subsidiary of Holdings or any of its Subsidiaries; (f) Indebtedness which may be deemed to exist pursuant to any guaranties, performance, surety, statutory, appeal or similar obligations incurred in the ordinary course of business; (g) Indebtedness in respect of netting services, overdraft protections and otherwise in connection with deposit accounts; (h) guaranties in the ordinary course of business of the obligations of suppliers, customers, franchisees and licensees of Holdings and its Subsidiaries; (i) guaranties by Company of Indebtedness of a Guarantor Subsidiary or guaranties by a Subsidiary of Company of Indebtedness of Company or a Guarantor Subsidiary with respect, in each case, to Indebtedness otherwise permitted to be incurred pursuant to this Section 6.1; (j) Indebtedness described in Schedule 6.1, but not any extensions, renewals or replacements of such Indebtedness except (i) renewals and extensions expressly provided for in the agreements evidencing any such Indebtedness as the same are in effect on the date of this Agreement and (ii) refinancings and extensions of any such Indebtedness if the terms and conditions thereof are not less favorable to the obligor thereon or to the Lenders than the Indebtedness being refinanced or extended, and the average life to maturity thereof is greater than or equal to that of the Indebtedness being refinanced or extended; PROVIDED, such Indebtedness permitted under the immediately preceding clause (i) or (ii) above shall not (A) include Indebtedness of an obligor that was not an obligor with respect to the Indebtedness being extended, renewed or refinanced, (B) exceed in a principal amount the Indebtedness being renewed, extended or refinanced or (C) incurred, created or assumed if any Default or Event of Default has occurred and is continuing or would result therefrom; Page 88 (k) Indebtedness with respect to Capital Leases in an aggregate amount not to exceed at any time $3,500,000; (l) purchase money Indebtedness in an aggregate amount not to exceed at any time $3,500,000 (including any Indebtedness acquired in connection with a Permitted Acquisition); PROVIDED, any such Indebtedness (i) shall be secured only to the asset acquired in connection with the incurrence of such Indebtedness, and (ii) shall constitute not less than 75% of the aggregate consideration paid with respect to such asset; (m) Permitted Seller Notes issued by Holdings as consideration in Permitted Acquisitions; PROVIDED that the aggregate principal amount of such Permitted Seller Notes shall not exceed $25,000,000 at any time outstanding; (n) Earn-Out Obligations incurred by Holdings constituting consideration payable in connection with Permitted Acquisitions; PROVIDED that the maximum aggregate exposure, as reasonably estimated by management under all such Earn-Out Obligations shall not exceed $3,000,000 at any time outstanding; (o) A Subsidiary acquired pursuant to a Permitted Acquisition may become or remain liable with respect to Indebtedness of such Subsidiary existing at the time of the acquisition of such Subsidiary by Company or any of its Subsidiaries and, a Subsidiary may become liable with respect to Indebtedness secured by assets acquired pursuant to a Permitted Acquisition; PROVIDED that (i) such Indebtedness was not incurred in connection with, or in anticipation of, such Permitted Acquisition, and (ii) the aggregate principal amount of all such Indebtedness does not exceed $10,000,000; (p) Indebtedness of Company or a Subsidiary of Company to a Person to the extent incurred in connection with the repurchase of Capital Stock of a Subsidiary of Company owned, directly or indirectly, by veterinarians whose employment with the Company or any of its Subsidiaries has terminated for any reason and any guaranty of such Indebtedness by Holdings required pursuant to certain contractual obligations existing prior to the Closing Date and not entered into in connection with or in anticipation of the Acquisition, in an aggregate principal amount outstanding not to exceed at any time $2,500,000; (q) Holdings and its Subsidiaries may incur the post-Closing Date obligations to pay Transaction Costs; (r) Indebtedness of Holdings constituting Investments by Company permitted under Section 6.7 hereof; and (s) other unsecured Indebtedness of Holdings and its Subsidiaries (other than with respect to the Permitted Seller Notes), in an aggregate amount not to exceed at any time $5,000,000. 6.2. LIENS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of Holdings or any of its Subsidiaries, whether now owned or hereafter acquired, or Page 89 any income or profits therefrom, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any Lien with respect to any such property, asset, income or profits under the UCC of any State or under any similar recording or notice statute, except: (a) Liens in favor of Collateral Agent for the benefit of Secured Parties granted pursuant to any Credit Document; (b) Liens for Taxes if obligations with respect to such Taxes are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted; (c) statutory Liens of landlords, banks (and rights of set-off), of carriers, warehousemen, mechanics, repairmen, workmen and materialmen, and other Liens imposed by law (other than any such Lien imposed pursuant to Section 401 (a)(29) or 412(n) of the Internal Revenue Code or by ERISA), in each case incurred in the ordinary course of business (i) for amounts not yet overdue or (ii) for amounts that are overdue and that (in the case of any such amounts overdue for a period in excess of five days) are being contested in good faith by appropriate proceedings, so long as such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made for any such contested amounts; (d) Liens incurred in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money or other Indebtedness), so long as no foreclosure, sale or similar proceedings have been commenced with respect to any portion of the Collateral on account thereof; (e) easements, rights-of-way, restrictions, encroachments, and other minor defects or irregularities in title, in each case which do not and will not interfere in any material respect with the ordinary conduct of the business of Holdings or any of its Subsidiaries; (f) any interest or title of a lessor or sublessor under any lease of real estate permitted hereunder; (g) Liens solely on any cash earnest money deposits made by Holdings or any of its Subsidiaries in connection with any letter of intent or purchase agreement entered into by it as permitted hereunder; (h) purported Liens evidenced by the filing of precautionary UCC financing statements relating solely to operating leases of personal property entered into in the ordinary course of business; (i) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (j) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property; Page 90 (k) licenses of patents, trademarks and other intellectual property rights granted by Holdings or any of its Subsidiaries in the ordinary course of business and not interfering in any respect with the ordinary conduct of the business of Company or such Subsidiary; (l) Liens described in Schedule 6.2 or on a title report delivered pursuant to Section 3.1 (i)(iv); (m) Liens securing Indebtedness permitted pursuant to Section 6.1(k) and 6.1(1); PROVIDED, any such Lien shall encumber only the asset acquired with the proceeds of such Indebtedness; and (n) Liens on assets acquired pursuant to a Permitted Acquisition securing Indebtedness permitted under Section 6.1(o) so long as such Liens were not created in anticipation of such Permitted Acquisition. 6.3. EQUITABLE LIEN. If any Credit Party or any of its Subsidiaries shall create or assume any Lien upon any of its properties or assets, whether now owned or hereafter acquired, other than Permitted Liens, it shall make or cause to be made effective a provisions whereby the Obligations will be secured by such Lien equally and ratably with any and all other Indebtedness secured thereby as long as any such Indebtedness shall be so secured; provided, notwithstanding the foregoing, this covenant shall not be construed as a consent by Requisite Lenders to the creation or assumption of any such Lien not otherwise permitted hereby. 6.4. NO FURTHER NEGATIVE PLEDGES. Except with respect to (a) specific property encumbered to secure payment of particular Indebtedness or to be sold pursuant to an executed agreement with respect to a permitted Asset Sale and (b) restrictions by reason of customary provisions restricting assignments, subletting or other transfers contained in leases, licenses and similar agreements entered into in the ordinary course of business (provided that such restrictions are limited to the property or assets secured by such Liens or the property or assets subject to such leases, licenses or similar agreements, as the case may be) no Credit Party nor any of its Subsidiaries shall enter into any agreement prohibiting the creation or assumption of any Lien upon any of its properties or assets, whether now owned or hereafter acquired. 6.5. RESTRICTED JUNIOR PAYMENTS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Junior Payment except the following shall be permitted: (a) on the Closing Date, Company may make a Restricted Junior Payment to Holdings, in an amount equal to the net proceeds of the Term Loans, the Senior Subordinated Notes and the Revolving Loans made on the Closing Date, which in the case of Revolving Loans shall not exceed $1,000,000, the proceeds of which shall be used by Holdings to fund a portion of the Acquisition Financing Requirements, to repay the Existing Indebtedness of Holdings and its Subsidiaries and to pay related fees and expenses; (b) Company may make regularly scheduled payments (but not voluntary prepayments) in respect of (i) the Senior Subordinated Notes in accordance with the terms of, and only to the extent required by, and subject to the subordination provisions contained in, the Page 91 Senior Subordinated Note Indenture, (ii) any repurchase or repayment of the Senior Subordinated Notes with the proceeds of any refinancing of the Senior Subordinated Notes permitted under Section 6.1(c) and (iii) so long as no Default or Event of Default shall have occurred and be continuing or shall be caused thereby, to the extent necessary to permit Company to discharge its obligations under the Senior Subordinated Note Registration Rights Agreement; (c) Holdings may make regularly scheduled payments (but not voluntary prepayments) in respect of (i) the Holdings Senior Notes in accordance with the terms of, and only to the extent required by the Holdings Senior Note Indenture, (ii) any repurchase or repayment of the Holdings Senior Notes with the proceeds of any refinancing of the Holdings Senior Notes permitted under Section 6.1(c) and (iii) to the extent necessary to permit Holdings to discharge its obligations under the Stockholders Agreement and the Holdings Registration Rights Agreement; (d) Company may make Restricted Junior Payments to Holdings after the fifth year anniversary of this Agreement, to the extent required to enable Holdings to make, regularly scheduled payments (such payments not to include any mandatory prepayments or redemptions), in respect of the Holdings Senior Notes in accordance with the terms of, and only to the extent required by, the Holdings Senior Note Indenture, so long as Holdings applies the amount of any such Restricted Junior Payment for such purpose; PROVIDED that at the time of such Restricted Junior Payment pursuant to this clause (d) and immediately after giving effect thereto, no Event of Default shall have occurred and be continuing under Section 8.1(a), Section 8.1(c) or Section 8.1(e); (e) Subsidiaries of Company may make Restricted Junior Payments by way of dividends to its shareholders proportionate to their respective holdings; (f) Holdings may make regularly scheduled payments in respect of (i) Permitted Seller Notes in accordance with the terms of, and only to the extent required by, and subject to the subordination provisions contained in, the agreement pursuant to which such permitted Seller Notes were issued or were otherwise subject, and (ii) Earn-Out Obligations in accordance with the terms of, and only to the extent required by, and subject to the subordination provisions contained in, the documents related to the relevant Permitted Acquisition; (g) Company and any of its Subsidiaries may issue Indebtedness pursuant to Section 6.1(p) and may make regularly scheduled payments in respect of such Indebtedness and Company and its Subsidiaries may make Restricted Junior Payments to repurchase the Capital Stock of a Subsidiary of Company owned, directly or indirectly, by veterinarians whose employment with the Company or any of its Subsidiaries has terminated for an reason; PROVIDED that (i) the aggregate amount of such Restricted Junior Payments do not exceed $750,000 in any Fiscal Year, and (ii) the aggregate principal amount of any such Indebtedness outstanding pursuant to Section 6.1(p) does not exceed at any time $2,500,000 in the aggregate; (h) Company may make Restricted Junior Payments to Holdings to the extent required to enable Holdings (i) to make scheduled payments of principal and interest on the Permitted Seller Notes and (ii) to make payments on Earn-Out Obligations in accordance with Page 92 the terms of, and only to the extent required by, the documents related to the relevant Permitted Acquisition, so long as Holdings applies the amount of any such Restricted Junior Payment for such purpose; PROVIDED, that at the time of such Restricted Junior Payment pursuant to this clause (h) and immediately after giving effect thereto, no Event of Default shall have occurred and be continuing under Section 8.1(a), Section 8.1(c) or Section 8.1(e); (i) Holdings and/or Company and its Subsidiaries may pay Transaction Costs (and Company may make Restricted Junior Payments to Holdings to the extent required to enable Holdings to make such payments, so long as Holdings applies the amount of any such Restricted Junior Payment for such purpose); PROVIDED that at the time of such Restricted Junior Payment pursuant to this clause (i) and immediately after giving effect thereto, no Event of Default shall have occurred and be continuing under Sections 8.1(a), Section 8.1(c) or Section 8.1(e); (j) Holdings may repurchase shares of Capital Stock of Holdings held by officers and employees of Holdings and its Subsidiaries upon the termination of the employment of such officers and employees; PROVIDED, HOWEVER, that the amount of such repurchase shall not exceed in any Fiscal Year the sum of (1) $1,500,000 plus (2) the unutilized portion of such $1,500,000 from the immediately preceding Fiscal Year; (k) Company may make Restricted Junior Payments to Holdings to the extent required to enable Holdings to make the repurchases permitted pursuant to Section 6.5(j), so long as Holdings applies the amount of any such Restricted Junior Payment for such purpose; (l) so long as no Default or Event of Default shall have occurred and be continuing or shall be caused thereby, Holdings and/or Company may make payments to Leonard Green & Partners, L.P. (and Company may make Restricted Junior Payments to Holdings to the extent required to enable Holdings to make such payments, so long as Holdings applies the amount of any such Restricted Junior Payments for such purpose) in an amount not to exceed in any Fiscal Year, the sum of the following: (1) $2,550,000 plus 1.6% of any additional equity investment made after the Closing Date by Sponsor, Co-Investors and their Affiliates as annual management fees pursuant to the Management Services Agreement, (2) any transaction fees to be paid to Leonard Green & Partners, L.P. in connection with the Acquisition, (3) any normal and customary transaction fees to be paid to Leonard Green & Partners, L.P., from time to time, under such Management Services Agreement, and (4) the reimbursement of the normal and customary out-of-pocket costs and expenses of Leonard Green & Partners, L.P. under such Management Services Agreement; PROVIDED, HOWEVER, such payments shall accrue during the pendency of any such Default or Event of Default and to the extent accrued shall be payable upon the cure, waiver or recision of such Default or Event of Default; PROVIDED, FURTHER, that the amount of such accrued payments in the Fiscal Year in which such accrued payments are actually made shall be in addition to the aggregate amount otherwise permitted to be paid in such Fiscal Year as set forth in clauses (1), (2), (3) and (4) of this Section 6.5(l); and (m) so long as no Default or Event of Default shall have occurred and be continuing or shall be caused thereby, Company may make Restricted Junior Payments to Holdings, to the extent necessary to permit Holdings to pay reasonable general administrative costs and expenses and (ii) to the extent necessary to permit Holdings to discharge the Page 93 consolidated tax liabilities of Holdings and its Subsidiaries, in each case so long as Holdings applies the amount of any such Restricted Junior Payment for such purpose. 6.6. RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS. Except as provided herein, no Credit Party shall, nor shall it permit any of its Subsidiaries to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiary of Company to (a) pay dividends or make any other distributions on any of such Subsidiary's Capital Stock owned by Company or any other Subsidiary of Company, (b) repay or prepay any Indebtedness owed by such Subsidiary to Company or any other Subsidiary of Company, (c) make loans or advances to Company or any other Subsidiary of Company, or (d) transfer any of its property or assets to Company or any other Subsidiary of Company other than restrictions (i) in agreements evidencing Indebtedness permitted by Section 6.1(k), Section 6.1(l) and Section 6.1(o) that impose restrictions on the transfer of property so acquired or securing such Indebtedness and (ii) by reason of customary provisions restricting assignments, subletting or other transfers contained in leases, licenses, joint venture agreements and similar agreements entered into in the ordinary course of business, and (iii) that are or were created by virtue of any transfer of, agreement to transfer or option or right with respect to any property, assets or Capital Stock not otherwise prohibited under this Agreement. 6.7. INVESTMENTS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, make or own any Investment in any Person, including without limitation any Joint Venture, except: (a) on or before the Closing Date, Holdings shall make a capital contribution to Company of all of Holdings' assets; (b) Cash Equivalents; (c) equity investments owned as of the Closing Date in any Subsidiary and Investments made after the Closing Date in any Subsidiary of Company; (d) Investments (i) in accounts receivable arising and trade credit granted in the ordinary course of business and in any Securities received in satisfaction or partial satisfaction thereof from financially troubled account debtors and (ii) deposits, prepayments and other credits to suppliers made in the ordinary course of business consistent with the past practices of Holdings and its Subsidiaries; (e) intercompany loans to the extent permitted under Section 6.1(b); (f) Consolidated Capital Expenditures permitted by Section 6.8(e); (g) loans and advances to employees of Holdings and its Subsidiaries made in the ordinary course of business, including to purchase Capital Stock of Holdings, in an aggregate principal amount not to exceed $2,000,000 at any one time outstanding; PROVIDED, HOWEVER, that the amount allocable to loans and advances to purchase Capital Stock of Holdings shall not exceed $1,000,000 in the aggregate; PROVIDED, FURTHER, HOWEVER, that the proceeds received by Holdings of such purchase of Holdings' Capital Stock, shall be used by Holdings to acquire Page 94 Capital Stock of Company or otherwise used to make a common equity contribution to Company or to repay loans or advances made to Holdings by Company pursuant to Section 6.7(i); (h) the payment of Transaction Costs; (i) loans and advances from Company to Holdings to permit Holdings to make payments contemplated to be made pursuant to Section 6.5 hereof; (j) Investments made to purchase the Capital Stock of any Subsidiary of Company from a Person who is not an Affiliate of Company and loans and advances to Persons permitted pursuant to Section 6.9(g) to purchase Capital Stock of any Subsidiary of Company in order to allow such purchases; (k) Investments made in connection with Permitted Acquisitions permitted pursuant to Section 6.9; (l) Investments described in Schedule 6.7; and (m) other Investments in an aggregate amount not to exceed at any time $4,000,000. 6.8. FINANCIAL COVENANTS. (a) INTEREST COVERAGE RATIO. Company shall not permit the Interest Coverage Ratio as of the last day of any Fiscal Quarter, beginning with the Fiscal Quarter ending March 31, 2001, to be less than the correlative ratio indicated: FISCAL QUARTER INTEREST COVERAGE RATIO ------------------------ ----------------------- March 31, 2001 2.00:1.00 June 30, 2001 2.00:1.00 September 30, 2001 2.00:1.00 December 31, 2001 2.00:1.00 March 31, 2002 2.25:1.00 June 30, 2002 2.25:1.00 September 30, 2002 2.25:1.00 December 31, 2002 2.50:1.00 March 31, 2003 2.50:1.00 June 30, 2003 2.50:1.00 September 30, 2003 2.50:1.00 December 31, 2003 2.75:1.00 March 31, 2004 2.75:1.00 Page 95 June 30, 2004 3.00:1.00 September 30, 2004 3.00:1.00 December 31, 2004 and 3.50:1.00 thereafter (b) FIXED CHARGE COVERAGE RATIO. Company shall not permit the Fixed Charge Coverage Ratio as of the last day of any Fiscal Quarter, beginning with the Fiscal Quarter ending March 31, 2001, to exceed the correlative ratio indicated: FISCAL QUARTER INTEREST COVERAGE RATIO ------------------------ ----------------------- March 31, 2001 1.05:1.00 June 30, 2001 1.05:1.00 September 30, 2001 1.05:1.00 December 31, 2001 1.05:1.00 March 31, 2002 1.10:1.00 June 30, 2002 1.10:1.00 September 30, 2002 1.10:1.00 December 31, 2002 1.10:1.00 March 31, 2003 1.10:1.00 June 30, 2003 1.10:1.00 September 30, 2003 1.10:1.00 December 31, 2003 1.10:1.00 March 31, 2004 1.10:1.00 June 30, 2004 1.10:1.00 September 30, 2004 1.10:1.00 December 31, 2004 1.10:100 March 31, 2005 1.10:1.00 June 30, 2005 1.10:1.00 September 30, 2005 1.10:1.00 December 31, 2005 and 1.15:1.00 thereafter Page 96 (c) LEVERAGE RATIO. Company shall not permit the Leverage Ratio as of the last day of any Fiscal Quarter, beginning with the Fiscal Quarter ending March 31, 2001, to exceed the correlative ratio indicated: FISCAL QUARTER INTEREST COVERAGE RATIO ------------------------ ----------------------- March 31, 2001 4.25:1.00 June 30, 2001 4.10:1.00 September 30, 2001 4.00:1.00 December 31, 2001 4.00:1.00 March 31, 2002 4.00:1.00 June 30, 2002 4.00:1.00 September 30, 2002 4.00:1.00 December 31, 2002 3.75:1.00 March 31, 2003 3.75:1.00 June 30, 2003 3.25:1.00 September 30, 2003 3.25:1.00 December 31, 2003 3.00:1.00 March 31, 2004 3.00:1.00 June 30, 2004 3.00:1.00 September 30, 2004 3.00:1.00 December 31, 2004 3.00:100 March 31, 2005 3.00:1.00 June 30, 2005 3.00:1.00 September 30, 2005 3.00:1.00 December 31, 2005 and 2.75:1.00 thereafter (d) SENIOR LEVERAGE RATIO. Company shall not permit the Senior Leverage Ratio as of the last day of any Fiscal Quarter, beginning with the Fiscal Quarter ending March 31, 2001, to exceed the correlative ratio indicated: FISCAL QUARTER INTEREST COVERAGE RATIO ----------------------- ----------------------- March 31, 2001 4.00:1.00 June 30, 2001 4.00:1.00 September 30, 2001 4.00:1.00 Page 97 December 31, 2001 4.00:1.00 March 31, 2002 3.75:1.00 June 30, 2002 3.75:1.00 September 30, 2002 3.75:1.00 December 31, 2002 3.40:1.00 March 31, 2003 3.40:1.00 June 30, 2003 3.40:1.00 September 30, 2003 3.40:1.00 December 31, 2003 3.00:1.00 March 31, 2004 3.00:1.00 June 30, 2004 3.00:1.00 September 30, 2004 3.00:1.00 December 31, 2004 and 2.75:1.00 thereafter (e) MAXIMUM CONSOLIDATED CAPITAL EXPENDITURES. Holdings shall not, and shall not permit its Subsidiaries to, make or incur Consolidated Capital Expenditures, in any Fiscal Year beginning with the Fiscal Year 2001, in an aggregate amount for Holdings and its Subsidiaries in excess of $20,000,000; PROVIDED, that 50% of any unutilized amount for any Fiscal Year may be utilized in the next succeeding Fiscal Year, but in no event shall any amount from any Fiscal Year prior to the immediately preceding Fiscal Year be utilized in the calculations of the foregoing. (f) CERTAIN CALCULATIONS. With respect to any period during which a Permitted Acquisition or an Asset Sale has occurred (each, a "SUBJECT TRANSACTION"), for purposes of determining compliance with the financial covenants set forth in this Section 6.8 (but not for purposes of determining the Applicable Margin or Applicable Commitment Fee Percentage), Consolidated Adjusted EBITDA shall be calculated with respect to such period on a pro forma basis (including pro forma adjustments arising out of events which are directly attributable to a specific transaction, are factually supportable and are expected to have a continuing impact, in each case determined on a basis consistent with Article 11 of Regulation S-X promulgated under the Securities Act and as interpreted by the staff of the Securities and Exchange Commission, which would include cost savings resulting from head count reduction, closure of facilities and similar restructuring charges, which pro forma adjustments shall be certified by the chief financial officer of Company) using the historical audited financial statements, to the extent available, of any business so acquired or to be acquired or sold or to be sold and the consolidated financial statements of Holdings and its Subsidiaries which shall be reformulated as if such Subject Transaction, and any Indebtedness incurred or repaid in connection therewith, had been consummated or incurred or repaid at the beginning of such period (and assuming that such Indebtedness bears interest during any portion of the applicable measurement period prior to the Page 98 relevant acquisition at the weighted average of the interest rates applicable to outstanding Loans incurred during such period); PROVIDED, HOWEVER, calculations of pro forma Consolidated Adjusted EBITDA with respect to a Permitted Acquisition, the aggregate consideration for which constitutes $3,000,000 or less, shall be based on reasonable estimations made by Company of such pre-acquisition EBITDA based on actual pre-acquisition revenues; PROVIDED, FURTHER that, such Consolidated Adjusted EBITDA shall not exceed in such case 20% of such actual pre-acquisition revenues. 6.9. FUNDAMENTAL CHANGES; DISPOSITION OF ASSETS; ACQUISITIONS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease or sub-lease (as lessor or sublessor), transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, assets or property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, whether now owned or hereafter acquired, or acquire by purchase or otherwise (other than purchases or other acquisitions of inventory, materials and equipment in the ordinary course of business) the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person or any division or line of business or other business unit of any Person, except: (a) any Subsidiary of Holdings may be merged with or into Company or any Guarantor Subsidiary, or be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to Company or any Guarantor Subsidiary; PROVIDED, in the case of such a merger, Company or such Guarantor Subsidiary, as applicable shall be the continuing or surviving Person; (b) sales or other dispositions of assets that do not constitute Asset Sales; (c) Asset Sales, the proceeds of which (valued at the principal amount thereof in the case of non-Cash proceeds consisting of notes or other debt Securities and valued at fair market value in the case of other non-Cash proceeds) (i) are less than $5,000,000 with respect to any single Asset Sale or series of related Asset Sales and (ii) when aggregated with the proceeds of all other Asset Sales made within the same Fiscal Year, are less than $15,000,000; PROVIDED (i) the consideration received for such assets shall be in an amount at least equal to the fair market value thereof (determined in good faith by the board of directors of Company (or similar governing body)), (2) no less than 80% thereof shall be paid in Cash, and (3) the Net Asset Sale Proceeds thereof shall be applied as required by Section 2.13(a); (d) any disposition of Company's partnership interest in the Vet's Choice joint venture with Heinz Pet Products; (e) and disposition of Company's interest in yopet.com, inc.; (f) disposals of obsolete, worn out, redundant or surplus property; (g) sales, assignments or other dispositions by Company and any of its Subsidiaries of the Capital Stock of any of their respective Subsidiaries to be owned, directly or indirectly, by one or more licensed veterinarians who will be actively involved in such Page 99 Subsidiary; PROVIDED that Company designates such Subsidiary as a Permitted Partially-Owned Subsidiary; (h) Permitted Acquisitions, the consideration for which constitutes (i) $10,000,000 or less in the aggregate from the Closing Date through the end of the fourth Fiscal Quarter of Fiscal Year 2000, (ii) $25,000,000 or less in the aggregate in Fiscal Year 2001, and (iii) $30,000,000 or less in the aggregate in any Fiscal Year thereafter; PROVIDED, that $5,000,000 of any unutilized amount for any Fiscal Year may be utilized in the next immediately succeeding Fiscal Year (but not in any Fiscal Years thereafter); PROVIDED, FURTHER, HOWEVER, that with respect to any acquisition the consideration of which is greater than $7,500,000, Company shall not make such acquisition without the prior consent of Administrative Agent and Syndication Agent, such consent not to be unreasonably withheld; (i) Sales and lease backs permitted pursuant to Section 6.11; (j) Investments made in accordance with Section 6.7; and (k) the Acquisition. 6.10. DISPOSAL OF SUBSIDIARY INTERESTS. Except for any sale of interests in the Capital Stock of any of its Subsidiaries in compliance with the provisions of Section 6.9, no Credit Party shall, (a) directly or indirectly sell, assign, pledge or otherwise encumber or dispose of any Capital Stock of any of its Subsidiaries, except to qualify directors if required by applicable law; or (b) permit any of its Subsidiaries directly or indirectly to sell, assign, pledge or otherwise encumber or dispose of any Capital Stock of any of its Subsidiaries, except to another Credit Party (subject to the restrictions on such disposition otherwise imposed hereunder), or to qualify directors if required by applicable law. 6.11. SALES AND LEASE-BACKS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, become or remain liable as lessee or as a guarantor or other surety with respect to any lease of any property (whether real, personal or mixed), whether now owned or hereafter acquired, which such Credit Party (a) has sold or transferred or is to sell or to transfer to any other Person (other than Holdings or any of its Subsidiaries), or (b) intends to use for substantially the same purpose as any other property which has been or is to be sold or transferred by such Credit Party to any Person (other than Holdings or any of its Subsidiaries) in connection with such lease; PROVIDED, HOWEVER, that Company and its Subsidiaries may sell and lease-back assets in an aggregate amount not to exceed $5,000,000 in any Fiscal Year. 6.12. TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder of 10% or more of any class of Capital Stock of Holdings or any of its Subsidiaries or with any Affiliate of Holdings or of any such holder, on terms that are less favorable to Holdings or that Subsidiary, as the case may be, than those that might be obtained at the time from a Person who is not such a holder or Affiliate; PROVIDED, the foregoing restriction shall not apply to (a) any transaction between Holdings, Company and any Subsidiary; (b) reasonable and customary fees paid to members of the board of directors (or similar governing Page 100 body) of Holdings and its Subsidiaries; (c) compensation and management equity arrangements for officers and other employees of Holdings and its Subsidiaries entered into in the ordinary course of business; (d) management or other fees or expenses paid to Sponsor or any of its Affiliates pursuant to Section 6.5(l); (e) the performance by Holdings and/or Company of their respective obligations under the Related Agreements; (f) payment of Transaction Costs to the extent such payments are made to any holder of 10% or more of any class of Capital Stock of Holdings or any of its Subsidiaries or to any Affiliate of Holdings or of any such holder; and (g) sales or purchases by Company or any of its Subsidiaries of the Capital Stock of a Subsidiary of Company; PROVIDED, that with respect to such sales, Company designates such Subsidiary a Permitted Partially-Owned Subsidiary, and, with respect to such purchases, such purchases are permitted pursuant to Sections 6.1 (p) and 6.5(g). 6.13. CONDUCT OF BUSINESS. From and after the Closing Date, no Credit Party shall, nor shall it permit any of its Subsidiaries to, engage in any business other than (i) the businesses engaged in by such Credit Party on the Closing Date and businesses or lines of businesses the same as, related, complementary or ancillary to, the business in which such Credit Party is engaged as of the Closing Date and (ii) such other lines of business as maybe consented to by Requisite Lenders. 6.14. PERMITTED ACTIVITIES OF HOLDINGS. Notwithstanding anything to the contrary contained herein, Holdings shall not (a) incur, directly or indirectly, any Indebtedness or any other obligation or liability whatsoever other than the Indebtedness and obligations permitted to be incurred by Holdings under Section 6.1 (including, without limitation, Indebtedness and obligations owing to Company, Indebtedness and obligations under the Related Agreements, Permitted Seller Notes and Earn-Out Obligations and Indebtedness and obligations set forth on Schedule 6.1 for which Holdings is obligor as of the Closing Date), obligations to pay Transaction Costs, obligations for Taxes and administrative costs and expenses as contemplated on Sections 6.5(l) and 6.5(m) and any pre-Merger liabilities of Holdings which remain liabilities of Holdings after the Closing Date as a matter of law; (b) create or suffer to exist any Lien upon any property or assets now owned or hereafter acquired by it other than the Liens created under the Collateral Documents to which it is a party or permitted pursuant to Section 6.2; (c) engage in any business or activity or own any assets other than (i) holding 100% of the Capital Stock of Company, (ii) performing its obligations and activities incidental thereto under the Credit Documents, and to the extent not inconsistent therewith, the Related Agreements (iii) performing its obligations under Permitted Seller Notes and Earn-Out Obligations and for Taxes and administrative costs and expenses as contemplated by Sections 6.5(l) and 6.5(m); and (iv) making Restricted Junior Payments and Investments to the extent permitted by this Agreement; (d) consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person; (e) sell or otherwise dispose of any Capital Stock of any of its Subsidiaries except to the extent permitted by Section 6.9; (f) create or acquire any Subsidiary or make or own any Investment in any Person other than Company and other than as permitted under Section 6.7(g); or (g) fail to hold itself out to the public as a legal entity separate and distinct from all other Persons. 6.15. AMENDMENTS OR WAIVERS OF CERTAIN RELATED AGREEMENTS. Except as set forth in Section 6.16, no Credit Party shall nor shall it permit any of its Subsidiaries to, agree to any material amendment, restatement, supplement or other modification to, or waiver of, any of its Page 101 material rights under any Related Agreement after the Closing Date without in each case obtaining the prior written consent of Requisite Lenders to such amendment, restatement, supplement or other modification or waiver. 6.16. AMENDMENTS OR WAIVERS WITH RESPECT TO SUBORDINATED INDEBTEDNESS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, amend or otherwise change the terms of any Subordinated Indebtedness, or make any payment consistent with an amendment thereof or change thereto, if the effect of such amendment or change is to increase the interest rate on such Subordinated Indebtedness, change (to earlier dates) any dates upon which payments of principal or interest are due thereon, change any event of default or condition to an event of default with respect thereto (other than to eliminate any such event of default or increase any grace period related thereto), change the redemption, prepayment or defeasance provisions thereof, change the subordination provisions of such Subordinated Indebtedness (or of any guaranty thereof), or if the effect of such amendment or change, together with all other amendments or changes made, is to increase materially the obligations of the obligor thereunder or to confer any additional rights on the holders of such Subordinated Indebtedness (or a trustee or other representative on their behalf) which would be adverse to any Credit Party or Lenders. 6.17. DESIGNATION OF "SENIOR INDEBTEDNESS". Company shall not designate any Indebtedness as "Senior Indebtedness" (as defined in the Senior Subordinated Note Indenture) for purposes of the Senior Subordinated Note Indenture without the prior written consent of Requisite Lenders. 6.18. FISCAL YEAR. No Credit Party shall, nor shall it permit any of its Subsidiaries to, change its Fiscal Year-end from December 31. SECTION 7. GUARANTY 7.1. GUARANTY OF THE OBLIGATIONS. Subject to the provisions of Section 7.2, Guarantors jointly and severally hereby irrevocably and unconditionally guaranty to Administrative Agent for the ratable benefit of the Beneficiaries the due and punctual payment in full of all Obligations when the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. ss. 362(a)) (collectively, the "GUARANTEED OBLIGATIONS"). 7.2. CONTRIBUTION BY GUARANTORS. All Guarantors desire to allocate among themselves (collectively, the "CONTRIBUTING GUARANTORS"), in a fair and equitable manner, their obligations arising under this Guaranty. Accordingly, in the event any payment or distribution is made on any date by a Guarantor (a "FUNDING GUARANTOR") under this Guaranty that exceeds its Fair Share as of such date, such Funding Guarantor shall be entitled to a contribution from each of the other Contributing Guarantors in the amount of such other Contributing Guarantor's Fair Share Shortfall as of such date, with the result that all such contributions will cause each Contributing Guarantor's Aggregate Payments to equal its Fair Share as of such date. "FAIR SHARE" means, with respect to a Contributing Guarantor as of any date of determination, an amount equal to (a) the ratio of (i) the Fair Share Contribution Amount with respect to such Page 102 Contributing Guarantor to (ii) the aggregate of the Fair Share Contribution Amounts with respect to all Contributing Guarantors multiplied by (b) the aggregate amount paid or distributed on or before such date by all Funding Guarantors under this Guaranty in respect of the obligations Guaranteed. "FAIR SHARE SHORTFALL" means, with respect to a Contributing Guarantor as of any date of determination, the excess, if any, of the Fair Share of such Contributing Guarantor over the Aggregate Payments of such Contributing Guarantor. "FAIR SHARE CONTRIBUTION AMOUNT" means, with respect to a Contributing Guarantor as of any date of determination, the maximum aggregate amount of the obligations of such Contributing Guarantor under this Guaranty that would not render its obligations hereunder or thereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any comparable applicable provisions of state law; PROVIDED, solely for purposes of calculating the "FAIR SHARE CONTRIBUTION AMOUNT" with respect to any Contributing Guarantor for purposes of this Section 7.2, any assets or liabilities of such Contributing Guarantor arising by virtue of any rights to subrogation, reimbursement or indemnification or any rights to or obligations of contribution hereunder shall not be considered as assets or liabilities of such Contributing Guarantor. "AGGREGATE PAYMENTS" means, with respect to a Contributing Guarantor as of any date of determination, an amount equal to (i) the aggregate amount of all payments and distributions made on or before such date by such Contributing Guarantor in respect of this Guaranty (including, without limitation, in respect of this Section 7.2), minus (2) the aggregate amount of all payments received on or before such date by such Contributing Guarantor from the other Contributing Guarantors as contributions under this Section 7.2. The amounts payable as contributions hereunder shall be determined as of the date on which the related payment or distribution is made by the applicable Funding Guarantor. The allocation among Contributing Guarantors of their obligations as set forth in this Section 7.2 shall not be construed in any way to limit the liability of any Contributing Guarantor hereunder. Each Guarantor is a third party beneficiary to the contribution agreement set forth in this Section 7.2. 7.3. PAYMENT BY GUARANTORS. Subject to Section 7.2, Guarantors hereby jointly and severally agree, in furtherance of the foregoing and not in limitation of any other right which any Beneficiary may have at law or in equity against any Guarantor by virtue hereof, that upon the failure of Company to pay any of the Guaranteed Obligations when and as the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. ss. 362(a)), Guarantors will upon demand pay, oR cause to be paid, in Cash, to Administrative Agent for the ratable benefit of Beneficiaries, an amount equal to the sum of the unpaid principal amount of all Guaranteed Obligations then due as aforesaid, accrued and unpaid interest on such Guaranteed Obligations (including interest which, but for Company's becoming the subject of a case under the Bankruptcy Code, would have accrued on such Guaranteed Obligations, whether or not a claim is allowed against Company for such interest in the related bankruptcy case) and all other Guaranteed Obligations then owed to Beneficiaries as aforesaid. 7.4. LIABILITY OF GUARANTORS ABSOLUTE. Each Guarantor agrees that its obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance which constitutes a legal or equitable discharge of a guarantor or surety other than payment in full of the Guaranteed Obligations. In furtherance of the foregoing and without limiting the generality thereof, each Guarantor agrees as follows: Page 103 (a) this Guaranty is a guaranty of payment when due and not of collectability. This Guaranty is a primary obligation of each Guarantor and not merely a contract of surety; (b) Administrative Agent may enforce this Guaranty upon the occurrence of an Event of Default notwithstanding the existence of any dispute between Company and any Beneficiary with respect to the existence of such Event of Default; (c) the obligations of each Guarantor hereunder are independent of the obligations of Company and the obligations of any other guarantor (including any other Guarantor) of the obligations of Company, and a separate action or actions may be brought and prosecuted against such Guarantor whether or not any action is brought against Company or any of such other guarantors and whether or not Company is joined in any such action or actions; (d) payment by any Guarantor of a portion, but not all, of the Guaranteed Obligations shall in no way limit, affect, modify or abridge any Guarantor's liability for any portion of the Guaranteed Obligations which has not been paid. Without limiting the generality of the foregoing, if Administrative Agent is awarded a judgment in any suit brought to enforce any Guarantor's covenant to pay a portion of the Guaranteed Obligations, such judgment shall not be deemed to release such Guarantor from its covenant to pay the portion of the Guaranteed Obligations that is not the subject of such suit, and such judgment shall not, except to the extent satisfied by such Guarantor, limit, affect, modify or abridge any other Guarantor's liability hereunder in respect of the Guaranteed Obligations; (e) any Beneficiary, upon such terms as it deems appropriate, without notice or demand and without affecting the validity or enforceability hereof or giving rise to any reduction, limitation, impairment, discharge or termination of any Guarantor's liability hereunder, from time to time may (i) renew, extend, accelerate, increase the rate of interest on, or otherwise change the time, place, manner or terms of payment of the Guaranteed Obligations; (ii) settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Guaranteed Obligations or any agreement relating thereto and/or subordinate the payment of the same to the payment of any other obligations; (iii) request and accept other guaranties of the Guaranteed Obligations and take and hold security for the payment hereof or the Guaranteed Obligations; (iv) release, surrender, exchange, substitute, compromise, settle, rescind, waive, alter, subordinate or modify, with or without consideration, any security for payment of the Guaranteed Obligations, any other guaranties of the Guaranteed Obligations, or any other obligation of any Person (including any other Guarantor) with respect to the Guaranteed Obligations; (v) enforce and apply any security now or hereafter held by or for the benefit of such Beneficiary in respect hereof or the Guaranteed Obligations and direct the order or manner of sale thereof, or exercise any other right or remedy that such Beneficiary may have against any such security, in each case as such Beneficiary in its discretion may determine consistent herewith or the applicable Hedge Agreement and any applicable security agreement, including foreclosure on any such security pursuant to one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable, and even though such action operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of any Guarantor against Company or any security for the Guaranteed Obligations; and (vi) exercise any other rights available to it under the Credit Documents or the Hedge Agreements; and Page 104 (f) this Guaranty and the obligations of Guarantors hereunder shall be valid and enforceable and shall not be subject to any reduction, limitation, impairment, discharge or termination for any reason (other than payment in full of the Guaranteed Obligations), including the occurrence of any of the following, whether or not any Guarantor shall have had notice or knowledge of any of them: (i) any failure or omission to assert or enforce or agreement or election not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy (whether arising under the Credit Documents or the Hedge Agreements, at law, in equity or otherwise) with respect to the Guaranteed Obligations or any agreement relating thereto, or with respect to any other guaranty of or security for the payment of the Guaranteed Obligations; (ii) any rescission, waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including provisions relating to events of default) hereof, any of the other Credit Documents, any of the Hedge Agreements or any agreement or instrument executed pursuant thereto, or of any other guaranty or security for the Guaranteed Obligations, in each case whether or not in accordance with the terms hereof or such Credit Document, such Hedge Agreement or any agreement relating to such other guaranty or security; (iii) the Guaranteed Obligations, or any agreement relating thereto, at any time being found to be illegal, invalid or unenforceable in any respect; (iv) the application of payments received from any source (other than payments received pursuant to the other Credit Documents or any of the Hedge Agreements or from the proceeds of any security for the Guaranteed Obligations, except to the extent such security also serves as collateral for indebtedness other than the Guaranteed Obligations) to the payment of indebtedness other than the Guaranteed Obligations, even though any Beneficiary might have elected to apply such payment to any part or all of the Guaranteed Obligations; (v) any Beneficiary's consent to the change, reorganization or termination of the corporate structure or existence of Holdings or any of its Subsidiaries and to any corresponding restructuring of the Guaranteed Obligations; (vi) any failure to perfect or continue perfection of a security interest in any collateral which secures any of the Guaranteed Obligations; (vii) any defenses, set-offs or counterclaims which Company may allege or assert against any Beneficiary in respect of the Guaranteed Obligations, including failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, accord and satisfaction and usury; and (viii) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of any Guarantor as an obligor in respect of the Guaranteed Obligations. 7.5. WAIVERS BY GUARANTORS. Each Guarantor hereby waives, for the benefit of Beneficiaries: (a) any right to require any Beneficiary, as a condition of payment or performance by such Guarantor, to (i) proceed against Company, any other guarantor (including any other Guarantor) of the Guaranteed Obligations or any other Person, (ii) proceed against or exhaust any security held from Company, any such other guarantor or any other Person, (iii) proceed against or have resort to any balance of any Deposit Account or credit on the books of any Beneficiary in favor of Company or any other Person, or (iv) pursue any other remedy in the power of any Beneficiary whatsoever; (b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of Company or any other Guarantor including any defense based on or arising out of the lack of validity or the unenforceability of the Guaranteed Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of Company or any other Guarantor from any cause other than payment in full of the Guaranteed Obligations; (c) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more Page 105 burdensome than that of the principal; (d) any defense based upon any Beneficiary's errors or omissions in the administration of the Guaranteed Obligations, except behavior which amounts to bad faith; (e) (i) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms hereof and any legal or equitable discharge of such Guarantor's obligations hereunder, (ii) the benefit of any statute of limitations affecting such Guarantor's liability hereunder or the enforcement hereof, (iii) any rights to set-offs, recoupments and counterclaims, and (iv) promptness, diligence and any requirement that any Beneficiary protect, secure, perfect or insure any security interest or lien or any property subject thereto; (f) notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance hereof, notices of default hereunder, the Hedge Agreements or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Guaranteed Obligations or any agreement related thereto, notices of any extension of credit to Company and notices of any of the matters referred to in Section 7.4 and any right to consent to any thereof, and (g) any defenses or benefits that may be derived from or afforded by law which limit the liability of or exonerate guarantors or sureties, or which may conflict with the terms hereof. 7.6. GUARANTORS' RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Until the Guaranteed Obligations shall have been indefeasibly paid in full and the Revolving Commitments shall have terminated each Guarantor hereby waives any claim, right or remedy, direct or indirect, that such Guarantor now has or may hereafter have against Company or any other Guarantor or any of its assets in connection with this Guaranty or the performance by such Guarantor of its obligations hereunder, in each case whether such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise and including without limitation (a) any right of subrogation, reimbursement or indemnification that such Guarantor now has or may hereafter have against Company with respect to the Guaranteed Obligations, (b) any right to enforce, or to participate in, any claim, right or remedy that any Beneficiary now has or may hereafter have against Company, and (c) any benefit of, and any right to participate in, any collateral or security now or hereafter held by any Beneficiary. In addition, until the Guaranteed Obligations shall have been indefeasibly paid in full and the Revolving Commitments shall have terminated each Guarantor shall withhold exercise of any right of contribution such Guarantor may have against any other guarantor (including any other Guarantor) of the Guaranteed Obligations, including, without limitation, any such right of contribution as contemplated by Section 7.2. Each Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement or indemnification such Guarantor may have against Company or against any collateral or security, and any rights of contribution such Guarantor may have against any such other guarantor, shall be junior and subordinate to any rights any Beneficiary may have against Company, to all right, title and interest any Beneficiary may have in any such collateral or security, and to any right any Beneficiary may have against such other guarantor. If any amount shall be paid to any Guarantor on account of any such subrogation, reimbursement, indemnification or contribution rights at any time when all Guaranteed Obligations shall not have been paid in full, such amount shall be held in trust for Administrative Agent on behalf of Beneficiaries and shall forthwith be paid over to Administrative Agent for the benefit of Beneficiaries to be credited and applied against the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms hereof. Page 106 7.7. SUBORDINATION OF OTHER OBLIGATIONS. Any Indebtedness of Company or any Guarantor now or hereafter held by any Guarantor (the "OBLIGEE GUARANTOR") is hereby subordinated in right of payment to the Guaranteed Obligations, and any such indebtedness collected or received by the Obligee Guarantor after an Event of Default has occurred and is continuing shall be held in trust for Administrative Agent on behalf of Beneficiaries and shall forthwith be paid over to Administrative Agent for the benefit of Beneficiaries to be credited and applied against the Guaranteed Obligations but without affecting, impairing or limiting in any manner the liability of the Obligee Guarantor under any other provision hereof. 7.8. CONTINUING GUARANTY. This Guaranty is a continuing guaranty and shall remain in effect until all of the Guaranteed Obligations shall have been finally and indefeasibly paid in full and the Revolving Commitments shall have terminated. Each Guarantor hereby irrevocably waives any right to revoke this Guaranty as to future transactions giving rise to any Guaranteed Obligations. 7.9. AUTHORITY OF GUARANTORS OR COMPANY. It is not necessary for any Beneficiary to inquire into the capacity or powers of any Guarantor or Company or the officers, directors or any agents acting or purporting to act on behalf of any of them. 7.10. FINANCIAL CONDITION OF COMPANY. Any Credit Extension may be made to Company or continued from time to time, and any Hedge Agreements may be entered into from time to time, in each case without notice to or authorization from any Guarantor regardless of the financial or other condition of Company at the time of any such grant or continuation or at the time such Hedge Agreement is entered into, as the case may be. No Beneficiary shall have any obligation to disclose or discuss with any Guarantor its assessment, or any Guarantor's assessment, of the financial condition of Company. Each Guarantor has adequate means to obtain information from Company on a continuing basis concerning the financial condition of Company and its ability to perform its obligations under the Credit Documents and the Hedge Agreements, and each Guarantor assumes the responsibility for being and keeping informed of the financial condition of Company and of all circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations. Each Guarantor hereby waives and relinquishes any duty on the part of any Beneficiary to disclose any matter, fact or thing relating to the business, operations or conditions of Company now known or hereafter known by any Beneficiary. 7.11. BANKRUPTCY, ETC. (a) So long as any Guaranteed Obligations remain outstanding, no Guarantor shall, without the prior written consent of Administrative Agent acting pursuant to the instructions of Requisite Lenders, commence or join with any other Person in commencing any bankruptcy, reorganization or insolvency case or proceeding of or against Company or any other Guarantor. The obligations of Guarantors hereunder shall not be reduced, limited, impaired, discharged, deferred, suspended or terminated by any case or proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of Company or any other Guarantor or by any defense which Company or any other Guarantor may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding. (b) Each Guarantor acknowledges and agrees that any interest on any portion of the Guaranteed Obligations which accrues after the commencement of any case or proceeding Page 107 referred to in clause (a) above (or, if interest on any portion of the Guaranteed Obligations ceases to accrue by operation of law by reason of the commencement of such case or proceeding, such interest as would have accrued on such portion of the Guaranteed Obligations if such case or proceeding had not been commenced) shall be included in the Guaranteed Obligations because it is the intention of Guarantors and Beneficiaries that the Guaranteed Obligations which are Guaranteed by Guarantors pursuant hereto should be determined without regard to any rule of law or order which may relieve Company of any portion of such Guaranteed Obligations. Guarantors will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors or similar person to pay Administrative Agent, or allow the claim of Administrative Agent in respect of, any such interest accruing after the date on which such case or proceeding is commenced. (c) In the event that all or any portion of the Guaranteed Obligations are paid by Company, the obligations of Guarantors hereunder shall continue and remain in full force and effect or be reinstated, as the case may be, in the event that all or any part of such payment(s) are rescinded or recovered directly or indirectly from any Beneficiary as a preference, fraudulent transfer or otherwise, and any such payments which are so rescinded or recovered shall constitute Guaranteed Obligations for all purposes hereunder. 7.12. DISCHARGE OF GUARANTY UPON SALE OF GUARANTOR. If all of the Capital Stock of any Guarantor or any of its successors in interest hereunder shall be sold or otherwise disposed of (including by merger or consolidation) in accordance with the terms and conditions hereof, the Guaranty of such Guarantor or such successor in interest, as the case may be, hereunder shall automatically be discharged and released without any further action by any Beneficiary or any other Person effective as of the time of such Asset Sale. SECTION 8. EVENTS OF DEFAULT 8.1. EVENTS OF DEFAULT. If any one or more of the following conditions or events shall occur: (a) FAILURE TO MAKE PAYMENTS WHEN DUE. Failure by Company to pay (i) when due any installment of principal of any Loan, whether at stated maturity, by acceleration, by notice of voluntary prepayment, by mandatory prepayment or otherwise; or (ii) any interest on any Loan or any fee or any other amount due hereunder within five (5) days after the date due; or (b) DEFAULT IN OTHER AGREEMENTS. (i) Failure of any Credit Party or any of their respective Subsidiaries to pay when due any principal of or interest on or any other amount payable in respect of one or more items of Indebtedness (other than Indebtedness referred to in Section 8.1(a)) in a principal amount of $3,500,000 or more, beyond the grace period, if any, provided therefor and the holder of such Indebtedness has any rights or remedies exercisable as a result of such failure; or (ii) breach or default by any Credit Party with respect to any other material term of (i) one or more items of Indebtedness in the individual or aggregate principal amounts referred to in clause (i) above or (2) any loan agreement, mortgage, indenture or other agreement relating to such item(s) of Indebtedness, in each case beyond the grace period, if any, provided therefor, if the effect of such breach or default is to cause, or to permit the holder or Page 108 holders of that Indebtedness (or a trustee on behalf of such holder or holders), to cause, that Indebtedness to become or be declared due and payable (or redeemable) prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be; or (c) BREACH OF CERTAIN COVENANTS. Failure of any Credit Party to perform or comply with any term or condition contained in Section 2.5, Section 5.2 or Section 6; or (d) BREACH OF REPRESENTATIONS, ETC. Any representation, warranty, certification or other statement made or deemed made by any Credit Party in any Credit Document or in any statement or certificate at any time given by any Credit Party or any of its Subsidiaries in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect as of the date made or deemed made; or (e) OTHER DEFAULTS UNDER CREDIT DOCUMENTS. Any Credit Party shall default in the performance of or compliance with any term contained herein or any of the other Credit Documents, other than any such term referred to in any other Section of this Section 8.1, and such default shall not have been remedied or waived within thirty (30) days after the earlier of (i) an officer of such Credit Party becoming aware of such default or (ii) receipt by Company of notice from Administrative Agent or any Lender of such default; or (f) INVOLUNTARY BANKRUPTCY, APPOINTMENT OF RECEIVER, ETC. (i) A court of competent jurisdiction shall miter a decree or order for relief in respect of Holdings or any of its Subsidiaries in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against Holdings or any of its Subsidiaries under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over Holdings or any of its Subsidiaries, or over all or a substantial part of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of Holdings or any of its Subsidiaries for all or a substantial part of its property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of Holdings or any of its Subsidiaries, and any such event described in this clause (ii) shall continue for sixty (60) days without having been dismissed, bonded or discharged; or (g) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (i) Holdings or any of its Subsidiaries shall have an order for relief entered with respect to it or shall commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or Holdings or any of its Subsidiaries shall make any assignment for the benefit of creditors; or (ii) Holdings or any of its Subsidiaries shall be unable, or shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due; or the board of directors (or similar governing body) of Holdings or any of its Page 109 Subsidiaries (or any committee thereof) shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to herein or in Section 8.1(f); or (h) JUDGMENTS AND ATTACHMENTS. Any money judgment, writ or warrant of attachment or similar process involving an amount in excess of $3,500,000 (to the extent not adequately covered by insurance as to which a solvent and unaffiliated insurance Company has acknowledged coverage) shall be entered or filed against Holdings or any of its Subsidiaries or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days (or in any event later than five days prior to the date of any proposed sale thereunder); or (i) DISSOLUTION. Any order, judgment or decree shall be entered against any Credit Party decreeing the dissolution or split up of such Credit Party and such order shall remain undischarged or unstayed for a period in excess of thirty (30) days; or (j) EMPLOYEE BENEFIT PLANS. There shall occur one or more ERISA Events which individually or in the aggregate results in or might reasonably be expected to result in liability of Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates in excess of $3,500,000 during the term hereof, there shall exist one or more facts or circumstances that might reasonably be expected to result in the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan; or there shall exist an amount of unfunded benefit liabilities (as defined in Section 400 1 (a)(1 8) of ERISA), individually or in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), which exceeds $3,500,000; or (k) CHANGE OF CONTROL. A Change of Control shall occur; or (l) GUARANTIES, COLLATERAL DOCUMENTS AND OTHER CREDIT DOCUMENTS. At any time after the execution and delivery thereof, (i) the Guaranty for any reason, other than the satisfaction in full of all Obligations, shall cease to be in full force and effect (other than in accordance with its terms) or shall be declared to be null and void or any Guarantor shall repudiate its obligations thereunder, (ii) this Agreement or any Collateral Document ceases to be in full force and effect (other than by reason of a release of Collateral in accordance with the terms hereof or thereof or the satisfaction in full of the Obligations in accordance with the terms hereof) or shall be declared null and void, or Collateral Agent shall not have or shall cease to have a valid and perfected Lien in any Collateral purported to be covered by the Collateral Documents with the priority required by the relevant Collateral Document, in each case for any reason other than the failure of Collateral Agent or any Secured Party to take any action within its control, or (iii) any Credit Party shall contest the validity or enforceability of any Credit Document in writing or deny in writing that it has any further liability, including with respect to future advances by Lenders, under any Credit Document to which it is a party; THEN, (i) upon the occurrence of any Event of Default described in Section 8.1(f) or 8.1(g), automatically, and (2) upon the occurrence of any other Event of Default, at the request of (or with the consent of) Requisite Lenders, upon notice to Company by Administrative Agent, (A) the Revolving Commitments, if any, of each Lender having such Revolving Commitments Page 110 shall immediately terminate; (B) each of the following shall immediately become due and payable, in each case without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by each Credit Party: (I) the unpaid principal amount of and accrued interest on the Loans, and (II) all other Obligations; PROVIDED, the foregoing shall not affect in any way the obligations of Lenders under Section 2.3(b)(iv); and (C) the Administrative Agent may cause the Collateral Agent to enforce any and all Liens and security interests created pursuant to Collateral Documents. Notwithstanding any of the foregoing to the contrary set forth herein, it shall not constitute an Event of Default hereunder if any of the circumstances described above in Sections 8.1(f), 8.1(g), 8.1(i) and 8.1(l) shall have occurred with respect to one or more Subsidiaries of Company which in the aggregate do not account for more than 2.50% of Company's total Consolidated Adjusted EBITDA for the four-Fiscal Quarter period most recently ended. SECTION 9. AGENTS 9.1. APPOINTMENT OF AGENTS. GSCP is hereby appointed Lead Arranger and Syndication Agent hereunder, and each Lender hereby authorizes Lead Arranger and Syndication Agent to act as its agents in accordance with the terms hereof and the other Credit Documents. Wells Fargo is hereby appointed Administrative Agent hereunder and under the other Credit Documents and each Lender hereby authorizes Administrative Agent to act as its agent in accordance with the terms hereof and the other Credit Documents. Each Agent hereby agrees to act upon the express conditions contained herein and the other Credit Documents, as applicable. The provisions of this Section 9 are solely for the benefit of Agents and Lenders and no Credit Party shall have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties hereunder, each Agent shall act solely as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for Holdings or any of its Subsidiaries. Syndication Agent, without consent of or notice to any party hereto, may assign any and all of its rights or obligations hereunder to any of its Affiliates. As of the Closing Date, all the respective obligations of GSCP, in its capacity as Lead Arranger and Syndication Agent, shall terminate. 9.2. POWERS AND DUTIES. Each Lender irrevocably authorizes each Agent to take such action on such Lender's behalf and to exercise such powers, rights and remedies hereunder and under the other Credit Documents as are specifically delegated or granted to such Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. Each Agent shall have only those duties and responsibilities that are expressly specified herein and the other Credit Documents. Each Agent may exercise such powers, rights and remedies and perform such duties by or through its agents or employees. No Agent shall have, by reason hereof or any of the other Credit Documents, a fiduciary relationship in respect of any Lender; and nothing herein or any of the other Credit Documents, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect hereof or any of the other Credit Documents except as expressly set forth herein or therein. Page 111 9.3. GENERAL IMMUNITY. (a) NO RESPONSIBILITY FOR CERTAIN MATTERS. No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectability or sufficiency hereof or any other Credit Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statements or in any financial or other statements, instruments, reports or certificates or any other documents furnished or made by any of Agent to Lenders or by or on behalf of any Credit Party to any Agent or any Lender in connection with the Credit Documents and the transactions contemplated thereby or for the financial condition or business affairs of any Credit Party or any other Person liable for the payment of any Obligations, nor shall any Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Credit Documents or as to the use of the proceeds of the Loans or as to the existence or possible existence of any Event of Default or Default. Anything contained herein to the contrary notwithstanding, Administrative Agent shall not have any liability arising from confirmations of the amount of outstanding Loans or the component amounts thereof. (b) EXCULPATORY PROVISIONS. No Agent nor any of its officers, partners, directors, employees or agents shall be liable to Lenders for any action taken or omitted by any Agent under or in connection with any of the Credit Documents except to the extent caused by such Agent's gross negligence or willful misconduct. Each Agent shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection herewith or any of the other Credit Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until such Agent shall have received instructions in respect thereof from Requisite Lenders (or such other Lenders as may be required to give such instructions under Section 10.5) and, upon receipt of such instructions from Requisite Lenders (or such other Lenders, as the case may be), such Agent shall be entitled to act or (where so instructed) refrain from acting, or to exercise such power, discretion or authority, in accordance with such instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper Person or Persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for Holdings and its Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against any Agent as a result of such Agent acting or (where so instructed) refraining from acting hereunder or any of the other Credit Documents in accordance with the instructions of Requisite Lenders (or such other Lenders as may be required to give such instructions under Section 10.5). 9.4. AGENTS ENTITLED TO ACT AS LENDER. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, any Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as if it were not performing the duties and functions delegated to it hereunder, and the term "Lender" shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity. Any Agent and its Affiliates may accept deposits from, lend money to Page 112 and generally engage in any kind of banking, trust, financial advisory or other business with Holdings or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from Company for services in connection herewith and otherwise without having to account for the same to Lenders. 9.5. LENDERS' REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENT. (a) Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of Holdings and its Subsidiaries in connection with Credit Extensions hereunder and that it has made and shall continue to make its own appraisal of the creditworthiness of Holdings and its Subsidiaries. No Agent shall have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of Lenders or to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to Lenders. (b) Each Lender, by delivering its signature page to this Agreement and funding its Tranche A Term Loan, Tranche B Term Loan and/or a Revolving Loan on the Closing Date, shall be deemed to have acknowledged receipt of, and consented to and approved, each Credit Document and each other document required to be approved by any Agent, Requisite Lenders or Lenders, as applicable on the Closing Date. 9.6. RIGHT TO INDEMNITY. Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify each Agent, to the extent that such Agent shall not have been reimbursed by any Credit Party, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Agent in exercising its powers, rights and remedies or performing its duties hereunder or under the other Credit Documents or otherwise in its capacity as such Agent in any way relating to or arising out hereof or the other Credit Documents; PROVIDED, no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct. If any indemnity furnished to any Agent for any purpose shall, in the opinion of such Agent, be insufficient or become impaired, such Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished; PROVIDED, in no event shall this sentence require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement in excess of such Lender's Pro Rata Share thereof; and PROVIDED FURTHER, this sentence shall not be deemed to require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement described in the proviso in the immediately preceding sentence. 9.7. SUCCESSOR ADMINISTRATIVE AGENT AND SWING LINE LENDER. Administrative Agent may resign at any time by giving thirty (30) days' prior written notice thereof to Lenders and Company, and Administrative Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to Company and Administrative Page 113 Agent and signed by Requisite Lenders. Upon any such notice of resignation or any such removal, Requisite Lenders shall have the right, upon five Business Days' notice to Company, to appoint a successor Administrative Agent. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Administrative Agent and the retiring or removed Administrative Agent shall promptly (i) transfer to such successor Administrative Agent all sums, Securities and other items of Collateral held under the Collateral Documents, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Administrative Agent under the Credit Documents, and (ii) execute and deliver to such successor Administrative Agent such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Administrative Agent of the security interests created under the Collateral Documents, whereupon such retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring or removed Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent hereunder. Any resignation or removal of Administrative Agent pursuant to this Section shall also constitute the resignation or removal of Wells Fargo or its successor as Swing Line Lender, and any successor Administrative Agent appointed pursuant to this Section shall, upon its acceptance of such appointment, become the successor Swing Line Lender for all purposes hereunder. In such event (a) Company shall prepay any outstanding Swing Line Loans made by the retiring or removed Administrative Agent in its capacity as Swing Line Lender, (b) upon such prepayment, the retiring or removed Administrative Agent and Swing Line Lender shall surrender any Swing Line Note held by it to Company for cancellation, and (c) Company shall issue, if so requested by Successor Administrative Agent and Swing Line Loan Lender, a new Swing Line Note to the successor Administrative Agent and Swing Line Lender, in the principal amount of the Swing Line Loan Sublimit then in effect and with other appropriate insertions. 9.8. COLLATERAL DOCUMENTS AND GUARANTY. (a) AGENTS UNDER COLLATERAL DOCUMENTS AND GUARANTY. Each Lender hereby further authorizes Agent, on behalf of and for the benefit of Lenders, to be the agent for and representative of Lenders with respect to the Guaranty, the Collateral and the Collateral Documents. Subject to Section 10.5, without further written consent or authorization from Lenders, Administrative Agent or Collateral Agent, as applicable, may execute any documents or instruments necessary to (i) release any Lien encumbering any item of Collateral that is the subject of a sale or other disposition of assets permitted hereby or to which Requisite Lenders (or such other Lenders as may be required to give such consent under Section 10.5) have otherwise consented or (ii) release any Guarantor from the Guaranty pursuant to Section 7.13 or with respect to which Requisite Lenders (or such other Lenders as may be required to give such consent under Section 10.5) have otherwise consented. (b) RIGHT TO REALIZE ON COLLATERAL AND ENFORCE GUARANTY. Anything contained in any of the Credit Documents to the contrary notwithstanding, Company, Administrative Agent, Collateral Agent and each Lender hereby agree that (i) no Lender shall have any right Page 114 individually to realize upon any of the Collateral or to enforce the Guaranty, it being understood and agreed that all powers, rights and remedies hereunder may be exercised solely by Administrative Agent, on behalf of Lenders in accordance with the terms hereof and all powers, rights and remedies under the Collateral Documents may be exercised solely by Collateral Agent, and (ii) in the event of a foreclosure by Collateral Agent on any of the Collateral pursuant to a public or private sale, Administrative Agent or any Lender may be the purchaser of any or all of such Collateral at any such sale and Collateral Agent, as agent for and representative of Secured Parties (but not any Lender or Lenders in its or their respective individual capacities unless Requisite Lenders shall otherwise agree in writing) shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any collateral payable by Collateral Agent at such sale. SECTION 10. MISCELLANEOUS 10.1. NOTICES. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given to a Credit Party, Lead Arranger, Syndication Agent, Collateral Agent, Administrative Agent or Swing Line Lender, shall be sent to such Person's address as set forth on Appendix B or in the other relevant Credit Document, and in the case of any Lender, the address as indicated on Appendix B or otherwise indicated to Administrative Agent in writing. Each notice hereunder shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service and signed for against receipt thereof, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed; PROVIDED, no notice to any Agent shall be effective until received by such Agent. 10.2. EXPENSES. Whether or not the transactions contemplated hereby shall be consummated, Company agrees to pay promptly (a) all the actual and reasonable costs and expenses of preparation of the Credit Documents and any consents, amendments, waivers or other modifications thereto; (b) all the costs of furnishing all opinions by counsel for Company and the other Credit Parties; (c) the reasonable and documented fees, expenses and disbursements of counsel to Agents (in each case including allocated costs of internal counsel) in connection with the negotiation, preparation, execution and administration of the Credit Documents and any consents, amendments, waivers or other modifications thereto and any other documents or matters requested by Company; (d) all the actual costs and reasonable and documented expenses of creating and perfecting Liens in favor of Collateral Agent, for the benefit of Lenders pursuant hereto, including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees, title insurance premiums and reasonable fees, expenses and disbursements of counsel to each Agent and of counsel providing any opinions that any Agent or Requisite Lenders may request in respect of the Collateral or the Liens created pursuant to the Collateral Documents; (e) all the actual costs and reasonable and documented fees, expenses and disbursements of any auditors, accountants, consultants or appraisers; (f) all the actual costs and reasonable and documented expenses (including the reasonable fees, expenses and disbursements of any appraisers, consultants, advisors and agents employed or retained by Collateral Agent and its counsel) in connection with the custody or preservation of any of the Collateral; (g) all other actual and reasonable and documented costs and expenses incurred by Page 115 each Agent in connection with the syndication of the Loans and Commitments and the negotiation, preparation and execution of the Credit Documents and any consents, amendments, waivers or other modifications thereto and the transactions contemplated thereby; and (h) after the occurrence of a Default or an Event of Default, all costs and expenses, including reasonable and documented attorneys' fees (including allocated costs of internal counsel) and costs of settlement, incurred by any Agent and Lenders in enforcing any Obligations of or in collecting any payments due from any Credit Party hereunder or under the other Credit Documents by reason of such Default or Event of Default (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Guaranty) or in connection with any refinancing or restructuring of the credit arrangements provided hereunder in the nature of a "work-out" or pursuant to any insolvency or bankruptcy cases or proceedings. 10.3. INDEMNITY. In addition to the payment of expenses pursuant to Section 10.2, whether or not the transactions contemplated hereby shall be consummated, each Credit Party agrees to defend (subject to Indemnitees' selection of counsel), indemnify, pay and hold harmless, each Agent and Lender and the officers, partners, directors, trustees, employees, agents and Affiliates of each Agent and each Lender (each, an "INDEMNITEE"), from and against any and all Indemnified Liabilities; PROVIDED, no Credit Party shall have any obligation to any Indemnitee hereunder with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities arise from the gross negligence or willful misconduct of that Indemnitee. To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in this Section 10.3 may be unenforceable in whole or in part because they are violative of any law or public policy, the applicable Credit Party shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them. To the extent permitted by applicable law, no Credit Party shall assert, and each hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, any Credit Document or any agreement or instrument or transaction contemplated hereby. 10.4. SET-OFF. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default each Lender is hereby authorized by each Credit Party at any time or from time to time subject to the consent of Administrative Agent (such consent not to be unreasonably withheld or delayed), without notice to any Credit Party or to any other Person (other than Administrative Agent), any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by such Lender to or for the credit or the account of any Credit Party against and on account of the obligations and liabilities of any Credit Party to such Lender hereunder, and participations therein and under the other Credit Documents, including all claims of any nature or description arising out of or connected hereto and participations therein or with any other Credit Document, irrespective of whether or not (a) such Lender shall have made any demand hereunder or (b) the principal of or the interest on the Loans or any other amounts due hereunder shall have become due and payable pursuant to Section 2 and although such obligations and liabilities, or any of them, may be contingent or unmatured. Each Credit Party hereby further Page 116 grants to Administrative Agent and each Lender a security interest in all Deposit Accounts maintained with Administrative Agent or such Lender as security for the Obligations. 10.5. AMENDMENTS AND WAIVERS. (a) REQUISITE LENDERS' CONSENT. Subject to Section 10.5(b) and 10.5(c), no amendment, modification, termination or waiver of any provision of the Credit Documents, or consent to any departure by any Credit Party therefrom, shall in any event be effective without the written concurrence of the Requisite Lenders. (b) AFFECTED LENDERS' CONSENT. Without the written consent of each Lender (other than a Defaulting Lender) that would be affected thereby, no amendment, modification, termination, or consent shall be effective if the effect thereof would: (i) extend the scheduled final maturity of any Loan or Note; (ii) waive, reduce or postpone any scheduled repayment (but not prepayment); (iii) reduce the rate of interest on any Loan (other than any waiver of any increase in the interest rate applicable to any Loan pursuant to Section 2.10) or any fee payable hereunder; (iv) extend the time for payment of any such interest or fees; (v) reduce the principal amount of any Loan; (vi) amend, modify, terminate or waive any provision of this Section 10.5(b) or Section 10.5(c); (vii) amend the definition of "REQUISITE LENDERS" or "PRO RATA SHARE"; PROVIDED, with the consent of Requisite Lenders, additional extensions of credit pursuant hereto may be included in the determination of "REQUISITE LENDERS" or "PRO RATA SHARE" on substantially the same basis as the Term Loan Commitments, the Term Loans, the Revolving Commitments and the Revolving Loans are included on the Closing Date; (viii) release or otherwise subordinate all or substantially all of the Collateral or all or substantially all of the Guarantors from the Guaranty except as expressly provided in the Credit Documents; or (ix) consent to the assignment or transfer by any Credit Party of any of its rights and obligations under any Credit Document. (c) OTHER CONSENTS. No amendment, modification, termination or waiver of any provision of the Credit Documents, or consent to any departure by any Credit Party therefrom, shall: Page 117 (i) increase any Revolving Commitment of any Lender over the amount thereof then in effect without the consent of such Lender; PROVIDED, no amendment, modification or waiver of any condition precedent, covenant, Default or Event of Default shall constitute an increase in any Revolving Commitment of any Lender; (ii) amend, modify, terminate or waive any provision hereof relating to the Swing Line Sublimit or the Swing Line Loans without the consent of Swing Line Lender; (iii) amend the definition of "REQUISITE CLASS LENDERS" without the consent of Requisite Class Lenders of each Class; PROVIDED, with the consent of the Requisite Lenders, additional extensions of credit pursuant hereto may be included in the determination of such "REQUISITE CLASS LENDERS" on substantially the same basis as the Term Loan Commitments, the Term Loans, the Revolving Commitments and the Revolving Loans are included on the Closing Date; (iv) alter the required application of any repayments or prepayments as between Classes pursuant to Section 2.14 without the consent of Requisite Class Lenders of each Class which is being allocated a lesser repayment or prepayment as a result thereof, PROVIDED, Requisite Lenders may waive, in whole or in part, any prepayment so long as the application, as between Classes, of any portion of such prepayment which is still required to be made is not altered; or (v) amend, modify, terminate or waive any provision of Section 9 as the same applies to any Agent, or any other provision hereof as the same applies to the rights or obligations of any Agent, in each case without the consent of such Agent, in each case without the consent of such Agent. (d) EXECUTION OF AMENDMENTS, ETC. Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of such Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 10.5 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by a Credit Party, on such Credit Party. 10.6. SUCCESSORS AND ASSIGNS; PARTICIPATIONS. (a) GENERALLY. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of Lenders. No Credit Party's rights or obligations hereunder nor any interest therein may be assigned or delegated by any Credit Party without the prior written consent of all Lenders. (b) REGISTER. Company, Administrative Agent and Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding Commitments and Loans listed therein for all purposes hereof, and no assignment or transfer of any such Commitment or Loan shall be effective, in each case, unless and until an Assignment Page 118 Agreement effecting the assignment or transfer thereof shall have been delivered to and accepted by Administrative Agent and recorded in the Register as provided in Section 10.6(e). Prior to such recordation, all amounts owed with respect to the applicable Commitment or Loan shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be prima facie evidence thereof. (c) RIGHT TO ASSIGN. Each Lender shall have the right at any time to sell, assign or transfer all or a portion of its rights and obligations under this Agreement, including, without limitation, all or a portion of its Commitment or Loans owing to it, Note or Notes held by it, or other Obligation (provided, HOWEVER, that each such assignment shall be of a uniform, and not varying, percentage of all rights and obligations under and in respect of any Loan and any related Commitments): (i) to any Person meeting the criteria of clause (i) of the definition of the term of "Eligible Assignee" upon the giving of notice to Company and Administrative Agent; and (ii) to any Person meeting the criteria of clause (ii) of the definition of the term of "Eligible Assignee" and, in the case of assignments of Revolving Loans or Revolving Commitments to any such Person (except in the case of assignments made by or to GSCP), consented to by each of Company and Administrative Agent (such consent not to be (x) unreasonably withheld or delayed or, (y) in the case of Company, required at any time an Event of Default shall have occurred and then be continuing); PROVIDED, further each such assignment pursuant to this Section 10.6(c)(ii) shall be in an aggregate amount of not less than (A) $5,000,000 (or such lesser amount as may be agreed to by Company and Administrative Agent or as shall constitute the aggregate amount of the Revolving Commitments, Revolving Loans and/or Tranche A Term Loans of the assigning Lender) with respect to the assignment of the Revolving Commitments, Revolving Loans and/or Tranche A Term Loans and (B) $1,000,000 (or such lesser amount as may be agreed to by Company and Administrative Agent or as shall constitute the aggregate amount of the Tranche B Term Loans of the assigning Lender) with respect to the assignment of the Tranche B Term Loans. (d) MECHANICS. The assigning Lender and the assignee thereof shall execute and deliver to Administrative Agent an Assignment Agreement, together with (i) a processing and recordation fee of $500 in the case of assignments pursuant to Section 10.6(c)(i) or made by or to GSCP, and $2,000 in the case of all other assignments (except that only one fee shall be payable in the case of contemporaneous assignments to Related Funds), and (ii) such forms, certificates or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment Agreement may be required to deliver to Administrative Agent pursuant to Section 2.19(c). (e) NOTICE OF ASSIGNMENT. Upon its receipt of a duly executed and completed Assignment Agreement, together with the processing and recordation fee referred to in Section 10.6(d) (and any forms, certificates or other evidence required by this Agreement in connection therewith), Administrative Agent shall record the information contained in such Assignment Page 119 Agreement in the Register, shall give prompt notice thereof to Company and shall maintain a copy of such Assignment Agreement. (f) REPRESENTATIONS AND WARRANTIES OF ASSIGNEE. Each Lender, upon execution and delivery hereof or upon executing and delivering an Assignment Agreement, as the case may be, represents and warrants as of the Closing Date or as of the applicable Effective Date (as defined in the applicable Assignment Agreement) that (i) it is an Eligible Assignee; (ii) it has experience and expertise in the making of or investing in commitments or loans such as the applicable Commitments or Loans, as the case may be; and (iii) it will make or invest in, as the case may be, its Commitments or Loans for its own account in the ordinary course of its business and without a view to distribution of such Commitments or Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws (it being understood that, subject to the provisions of this Section 10.6, the disposition of such Commitments or Loans or any interests therein shall at all times remain within its exclusive control). (g) EFFECT OF ASSIGNMENT. Subject to the terms and conditions of this Section 10.6, as of the "Effective Date" specified in the applicable Assignment Agreement: (i) the assignee thereunder shall have the rights and obligations of a "Lender" hereunder to the extent such rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement and shall thereafter be a party hereto and a "Lender" for all purposes hereof, (ii) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned thereby pursuant to such Assignment Agreement, relinquish its rights (other than any rights which survive the termination hereof under Section 10.8) and be released from its obligations hereunder (and, in the case of an Assignment Agreement covering all or the remaining portion of an assigning Lender's rights and obligations hereunder, such Lender shall cease to be a party hereto; PROVIDED, anything contained in any of the Credit Documents to the contrary notwithstanding, such assigning Lender shall continue to be entitled to the benefit of all indemnities hereunder as specified herein with respect to matters arising out of the prior involvement of such assigning Lender, as a Lender hereunder; (iii) the Commitments shall be modified to reflect the Commitment of such assignee and any remaining Commitment of such assigning Lender, if any; and (iv) if any such assignment occurs after the issuance of any Note hereunder, the assigning Lender shall, upon the effectiveness of such assignment or as promptly thereafter as practicable, surrender its applicable Notes to Administrative Agent for cancellation, and thereupon Company shall issue and deliver new Notes, if so requested by the assignee and/or assigning Lender, to such assignee and/or to such assigning Lender, with appropriate insertions, to reflect the new Commitments and/or outstanding Loans of the assignee and/or the assigning Lender. (h) PARTICIPATIONS. Each Lender shall have the right at any time to sell one or more participations to any Person (other than Holdings, any of its Subsidiaries or any of its Affiliates) in all or any part of its Commitments, Loans or in any other Obligation. The holder of any such participation, other than an Affiliate of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except with respect to any amendment modification or waiver that would (i) extend the final scheduled maturity of any Loan or Note in which such participant is participating, or reduce the rate or extend the time of payment of Interest or Fees thereon (except in connection with a waiver of applicability of any post default increase in interest rates) or reduce the principal amount thereof, Page 120 or increase the amount of the participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Commitment shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan shall be permitted without the consent of any participant if the participant's participation is not increased as a result thereof), (ii) consent to the assignment or transfer by any Credit Party of any of its rights and obligations under this Agreement or (iii) release all or substantially all of the Collateral under the Collateral Documents (except as expressly provided in the Credit Documents) supporting the Loans hereunder in which such participant is participating. All amounts payable by any Credit Party hereunder, including amounts payable to such Lender pursuant to Section 2.17(c), 2.18 or 2.19, shall be determined as if such Lender had not sold such participation. Each Credit Party and each Lender hereby acknowledge and agree that, solely for purposes of Sections 2.16 and 10.4, (1) any participation will give rise to a direct obligation of each Credit Party to the participant and (2) the participant shall be considered to be a "Lender." (i) CERTAIN OTHER ASSIGNMENTS. In addition to any other assignment permitted pursuant to this Section 10.6, (i) any Lender may assign and pledge all or any portion of its Loans, the other Obligations owed to such Lender, and its Notes, if any, to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank, and (ii) with the consent of Administrative Agent any Lender which is an investment fund may pledge all or any portion of its Notes, if any, or Loans to its trustee in support of its obligations to such trustee; PROVIDED, no Lender, as between Company and such Lender, shall be relieved of any of its obligations hereunder as a result of any such assignment and pledge, and PROVIDED FURTHER in no event shall the applicable Federal Reserve Bank or trustee be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder. 10.7. INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists. 10.8. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All representations, warranties and agreements made herein shall survive the execution and delivery hereof and the making of any Credit Extension. Notwithstanding anything herein or implied by law to the contrary, the agreements of each Credit Party set forth in Sections 2.17(c), 2.18, 2.19, 10.2, 10.3 and 10.4 and the agreements of Lenders set forth in Sections 2.16 and 9.6 shall survive the payment of the Loans and the reimbursement of any amounts drawn thereunder, and the termination hereof. 10.9. NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Credit Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. The rights, powers and remedies given to each Agent and each Lender hereby are Page 121 cumulative and shall be in addition to and independent of all rights, powers and remedies existing by virtue of any statute or rule of law or in any of the other Credit Documents or any of the Hedge Agreements. Any forbearance or failure to exercise, and any delay in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy. 10.10. MARSHALLING; PAYMENTS SET ASIDE. Neither any Agent nor any Lender shall be under any obligation to marshal any assets in favor of any Credit Party or any other Person or against or in payment of any or all of the Obligations. To the extent that any Credit Party makes a payment or payments to Administrative Agent or Lenders (or to Administrative Agent, on behalf of Lenders), or Administrative Agent or Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred. 10.11. SEVERABILITY. In case any provision in or obligation hereunder or any Note shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 10.12. OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS. The obligations of Lenders hereunder are several and no Lender shall be responsible for the obligations or Commitment of any other Lender hereunder. Nothing contained herein or in any other Credit Document, and no action taken by Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out hereof and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. 10.13. ENTIRE AGREEMENT. This Agreement (together with the schedules hereto, the letter agreements dated the date hereof and making specific reference hereto, exhibits hereto, annexes hereto and the other agreements, documents and instruments delivered pursuant hereto) and the Credit Documents and Related Agreements constitute the entire agreement among the parties or any of them with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and verbal, among the parties or any of them with respect to the subject matter hereof. 10.14. HEADINGS. Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect. Page 122 10.15. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF. 10.16. CONSENT TO JURISDICTION. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY CREDIT PARTY ARISING OUT OF OR RELATING HERETO OR ANY OTHER CREDIT DOCUMENT, OR ANY OF THE OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH CREDIT PARTY, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (A) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (B) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (C) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE APPLICABLE CREDIT PARTY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 10.1; (D) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (C) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE APPLICABLE CREDIT PARTY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND (E) AGREES AGENTS AND LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY CREDIT PARTY IN THE COURTS OF ANY OTHER JURISDICTION. 10.17. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING HEREUNDER OR UNDER ANY OF THE OTHER CREDIT DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/COMPANY RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS Page 123 WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 10.17 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR ANY OF THE OTHER CREDIT DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 10.18. CONFIDENTIALITY. Each Lender shall hold all non-public information obtained pursuant to the requirements hereof which has been identified as confidential by Company in accordance with such Lender's customary procedures for handling confidential information of this nature and in accordance with prudent lending or investing practices, it being understood and agreed by Company that in any event a Lender may make disclosures to Affiliates of such Lender (and to other persons authorized by a Lender or Agent to organize, present or disseminate such information in connection with disclosures otherwise made in accordance with this Section 10.18), disclosures reasonably required by any bona fide or potential assignee, transferee or participant in connection with the contemplated assignment, transfer or participation by such Lender of any Loans or any participations therein or by any direct or indirect contractual counterparties (or the professional advisors thereto) in Hedge Agreements (provided, such counterparties and advisors are advised of and agree to be bound by the provisions of this Section 10.18) or disclosures required or requested by any governmental agency or representative thereof or by the NAIC or pursuant to legal process; PROVIDED, unless specifically prohibited by applicable law or court order, each Lender shall make reasonable efforts to notify Company of any request by any governmental agency or representative thereof (other than any such request in connection with any examination of the financial condition or other routine examination of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information. 10.19. USURY SAVINGS CLAUSE. Notwithstanding any other provision herein, the aggregate interest rate charged with respect to any of the Obligations, including all charges or fees in connection therewith deemed in the nature of interest under applicable law shall not exceed the Highest Lawful Rate. If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate, the outstanding amount of the Loans made hereunder shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the Loans made hereunder are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, Company shall pay to Administrative Agent an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of Lenders and Company to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, charges, or receives any consideration which constitutes interest in excess of the Highest Lawful Page 124 Rate, then any such excess shall be cancelled automatically and, if previously paid, shall at such Lender's option be applied to the outstanding amount of the Loans made hereunder or be refunded to Company. 10.20. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. 10.21. EFFECTIVENESS. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by Company and Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof. [Remainder of page intentionally left blank] Page 125 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. COMPANY: VICAR OPERATING, INC. By: /S/ ROBERT L. ANTIN ------------------------------- Name: Robert L. Antin Title: Chief Executive Officer and President By: /S/ TOMAS W. FULLER ------------------------------- Name: Tomas W. Fuller Title: Chief Financial Officer and Assistant Secretary HOLDINGS: VETERINARY CENTERS OF AMERICA, INC. By: /S/ ROBERT L. ANTIN ------------------------------- Name: Robert L. Antin Title: Chief Executive Officer and President By: /S/ TOMAS W. FULLER ------------------------------- Name: Tomas W. Fuller Title: Chief Financial Officer and Assistant Secretary GUARANTORS: AAH MERGER CORPORATION ACADEMY ANIMAL, INC. ANDERSON ANIMAL HOSPITAL, INC. ANIMAL EMERGENCY CLINIC, P.C. ANIMAL CLINIC OF SANTA CRUZ, INC. BEAUMONT VETERINARY ASSOCIATES, P.C. BERLA, INC. CACOOSING ANIMAL HOSPITAL, LTD. CACOOSING PET CARE & NUTRITION CENTER, INC. CLARMAR ANIMAL HOSPITAL, INC. DETWILER VETERINARY CLINIC, INC. DIAGNOSTIC VETERINARY SERVICE, INC. EAGLE PARK ANIMAL CLINIC, INC. EAGLE RIVER VETERINARY HOSPITAL, INC. EDGEBROOK, INC. FLORIDA VETERINARY LABORATORIES, INC. FOX CHAPEL ANIMAL HOSPITAL, INC. FREEHOLD, INC. GLEN ANIMAL HOSPITAL, INC. Page 126 GOLDEN MERGER CORPORATION H.B. ANIMAL CLINICS, INC. HOWELL BRANCH ANIMAL HOSPITAL, P.A. HIGHLANDS ANIMAL HOSPITAL, INC. LAKE JACKSON VETERINARY CLINIC, INC. LAKEWOOD ANIMAL HOSPITAL, INC. LAMMERS VETERINARY HOSPITAL, INC. LEWELLING VETERINARY CLINIC, INC. MILLER ANIMAL HOSPITAL M.S. ANIMAL HOSPITALS, INC. NEWARK ANIMAL HOSPITAL, INC. NORTHERN ANIMAL HOSPITAL, INC. NORTH ROCKVILLE VETERINARY HOSPITAL, INC. NORTHSIDE ANIMAL HOSPITAL, P.C. NOYES ANIMAL HOSPITAL, INC. OAK HILL VETERINARY HOSPITAL, INC. OLD TOWN VETERINARY HOSPITAL, INC. PET PRACTICE (MASSACHUSETTS), INC. PETS' RX, INC. PETS' RX NEVADA, INC. PPI OF PENNSYLVANIA, INC. PRINCETON ANIMAL HOSPITAL, INC. PROFESSIONAL VETERINARY SERVICES, INC. RIVIERA ANIMAL HOSPITAL, INC. ROBERTSON BLVD. ANIMAL HOSPITAL, INC. ROSSMOOR - ELDORADO ANIMAL HOSPITAL, INC. ROSSMOOR CENTER ANIMAL CLINIC, INC. SAN VICENTE ANIMAL CLINIC SILVER SPUR ANIMAL HOSPITAL, INC. SOUTH COUNTY VETERINARY CLINIC, INC. SPANISH RIVER ANIMAL HOSPITAL, INC. TAMPA ANIMAL MEDICAL CENTER, INC. THE PET PRACTICE (FLORIDA), INC. THE PET PRACTICE (ILLINOIS), INC. THE PET PRACTICE (MASSACHUSETTS), INC. THE PET PRACTICE OF MICHIGAN, INC. VCA ALABAMA, INC. VCA ALBANY ANIMAL HOSPITAL, INC. VCA ALBUQUERQUE, INC. VCA ALL PETS ANIMAL COMPLEX, INC. VCA ALPINE ANIMAL HOSPITAL, INC. VCA ANDERSON OF CALIFORNIA ANIMAL HOSPITAL, INC. VCA ANIMAL HOSPITALS, INC. VCA ANIMAL HOSPITAL WEST, INC. VCA APAC ANIMAL HOSPITAL, INC. Page 127 VCA - ASHER, INC. VCA BAY AREA ANIMAL HOSPITAL, INC. VCA CACOOSING ANIMAL HOSPITAL, INC. VCA CASTLE SHANNON VETERINARY HOSPITAL, INC. VCA CENTERS-TEXAS, INC. VCA CENVET, INC VCA CLARMAR ANIMAL HOSPITAL, INC. VCA CLINICAL VETERINARY LABS, INC. VCA CLINIPATH LABS, INC. VCA CLOSTER, INC. VCA DETWILER ANIMAL HOSPITAL, INC. VCA DOVER ANIMAL HOSPITAL, INC. VCA EAGLE RIVER ANIMAL HOSPITAL, INC. VCA EAST ANCHORAGE ANIMAL HOSPITAL, INC. VCA GOLDEN COVE ANIMAL HOSPITAL, INC. VCA GREATER SAVANNAH ANIMAL HOSPITAL, INC. VCA HOWELL BRANCH ANIMAL HOSPITAL, INC. VCA INFORMATION SYSTEMS, INC. VCA KANEOHE ANIMAL HOSPITAL, INC. VCA LAKESIDE ANIMAL HOSPITAL, INC. VCA LAMB AND STEWART ANIMAL HOSPITAL, INC. VCA LAMMERS ANIMAL HOSPITAL, INC. VCA LEWIS ANIMAL HOSPITAL, INC. VCA MARINA ANIMAL HOSPITAL, INC. VCA MILLER ANIMAL HOSPITAL, INC. VCA MISSION, INC. VCA NORTHBORO ANIMAL HOSPITAL, INC. VCA NORTHWEST VETERINARY DIAGNOSTICS, INC. VCA OF COLORADO-ANDERSON, INC. VCA OF NEW YORK, INC. VCA OF SAN JOSE, INC. VCA OF TERESITA, INC. VCA PROFESSIONAL ANIMAL LABORATORY, INC. VCA REAL PROPERTY ACQUISITION CORPORATION VCA REFERRAL ASSOCIATES ANIMAL HOSPITAL, INC. VCA ROHRIG ANIMAL HOSPITAL, INC. VCA - ROSSMOOR, INC. VCA SILVER SPUR ANIMAL HOSPITAL, INC. VICA SOUTH SHORE ANIMAL HOSPITAL, INC. VCA SPECIALTY PET PRODUCTS, INC. VCA SQUIRE ANIMAL HOSPITAL, INC. VCA ST. PETERSBURG ANIMAL HOSPITAL, INC. VCA TEXAS MANAGEMENT, INC. VCA WYOMING ANIMAL HOSPITAL, INC. VETERINARY HOSPITALS, INC. WEST LOS ANGELES VETERINARY MEDICAL GROUP, INC. Page 128 WESTWOOD DOG & CAT HOSPITAL W.E. ZUSCHLAG, D.V.M., WORTH ANIMAL HOSPITAL, CHARTERED WILLIAM C. FOUTS, D.V.M., LTD. WINGATE, INC. By: /S/ ROBERT L. ANTIN ------------------------------- Name: Robert L. Antin Title: Chief Executive Officer and President By: /S/ TOMAS W. FULLER ------------------------------- Name: Tomas W. Fuller Title: Chief Financial Officer and Assistant Secretary VCA VILLA ANIMAL HOSPITAL, L.P. By: VCA Animal Hospitals, Inc., General Partner By: /S/ ROBERT L. ANTIN ------------------------------- Name: Robert L. Antin Title: Chief Executive Officer and President By: /S/ TOMAS W. FULLER ------------------------------- Name: Tomas W. Fuller Title: Chief Financial Officer and Assistant Secretary VETERINARY CENTERS OF AMERICA-TEXAS, L.P. By: VCA Centers-Texas, Inc., General Partner By: /S/ ROBERT L. ANTIN ------------------------------- Name: Robert L. Antin Title: Chief Executive Officer and President By: /S/ TOMAS W. FULLER ------------------------------- Name: Tomas W. Fuller Title: Chief Financial Officer and Assistant Secretary Page 129 SOLE LEAD ARRANGER, SOLE SYNDICATION AGENT AND A LENDER: GOLDMAN SACHS CREDIT PARTNERS L.P. By: /S/ --------------------------------------- Authorized Signatory Page 130 ADMINISTRATION AGENT, SWING LINE LENDER AND A LENDER: WELLS FARGO BANK, N.A., By: /S/ S. MICHAEL ST. GEME ------------------------------------- Name: S. Michael St. Geme Title: Vice President Page 131 EX-10 9 ex-10_5.txt EXHIBIT 10.5 - NON-COMPETE - R. ANTIN EXHIBIT 10.5 NON-COMPETITION AGREEMENT THIS NON-COMPETITION AGREEMENT (this "Agreement") is made and entered into as of the 20th day of September, 2000, by and among Veterinary Centers of America, Inc., a Delaware corporation ("VCA"), Vicar Operating, Inc., a Delaware corporation and a wholly owned subsidiary of the Company, ("VCA Sub"), and Robert L. Antin ("Covenantor"). RECITALS Prior to the execution of this Agreement, the Company, Vicar Recap, Inc., a Delaware corporation and VCA Sub have entered into the Agreement and Plan of Merger dated as of March 30, 2000 (the "Merger Agreement"). Capitalized terms used and not defined herein shall have the meanings ascribed to them in the Merger Agreement. AGREEMENT NOW, THEREFORE, in reliance on the foregoing facts and in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. NON-COMPETITION. During the term hereof, Covenantor agrees that, within seven miles of any animal hospital or veterinary laboratory owned or operated by VCA or any affiliate of VCA (the "Radius"), he shall not, without the prior written consent of VCA, directly or indirectly, own, operate, manage, control, or participate in the ownership, management, operation or control of, or be connected as an officer, director, employee, owner, partner, member, manager or joint venturer or otherwise permit his name to be used by or in connection with any veterinary medical or laboratory practice. In connection with and in addition to the foregoing, Covenantor agrees during the term hereof not to: (i) hire or offer employment to any employee of VCA or any of their respective affiliates unless VCA first terminates the employment of such employee; or (ii) solicit, divert, or take away from VCA and its affiliates the business of any individual, corporation, trust, estate, partnership, joint venture, association, limited liability company, governmental bureau or other entity of whatsoever kind or nature ("Person") who or which at the time of the Closing or at any time within one (1) year prior to such time or at any time thereafter during the term hereof, was a customer of VCA. Notwithstanding anything to the contrary contained herein, Covenantor is expressly permitted prior to, during and after the term of this Agreement to own, operate, manage, control or participate in the ownership, management, operation or control of, and/or be connected as an officer, director, employee, owner, partner, member, manager or joint venturer and/or permit his name to be used by or in connection with any business whose primarily purpose is the development and/or operation of a commerce, content and/or community web site focused on veterinary and other pet related products, services and interests. 2. CONFIDENTIAL INFORMATION. Covenantor agrees that he will not, during the term of this Agreement, use or disclose to any Person other than VCA or its affiliates or their respective employees acting on behalf of VCA or its affiliates, any customer list, potential customer list, records, techniques, business secrets, trade secrets or any other information with respect to the business of VCA not available generally in the veterinary field and not known to competitors of VCA or its affiliates or other third parties unaffiliated with VCA or its affiliates ("Confidential Information"). 3. CONSIDERATION. As consideration for the covenants and agreements of Covenantor contained herein, VCA has paid to Covenantor on the Closing $6,225,300. 4. TERM AND TERMINATION. The term of this Agreement shall commence on the date hereof and shall terminate on that date which is three (3) years following the date hereof. Notwithstanding the foregoing, if Covenantor's employment is terminated without "cause" as defined in that certain Employment Agreement of even date herewith between Covenantor and VCA, then this Agreement immediately shall terminate and be of no further force or effect. 5. INJUNCTIVE RELIEF AND OTHER REMEDIES UPON BREACH BY COVENANTOR. Covenantor acknowledges and agrees that (i) the provisions of this Agreement are reasonable and necessary to protect the legitimate interests of VCA, and (ii) in the event of any breach by Covenantor of any of Covenantor's covenants and agreements contained herein, VCA would encounter extreme difficulty in attempting to prove the actual amount of damages suffered by it as a result of such breach, VCA would not have an adequate remedy at law in such event and, therefore, in addition to any other remedy it may have at law or in equity in the event of any such breach, VCA shall be entitled to seek and receive specific performance and temporary, preliminary and permanent injunctive relief from violation of any of the provisions of this Agreement from any court of competent jurisdiction without the necessity of proving the amount of any actual damages to it resulting from such breach. 6. MISCELLANEOUS. 6.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. No party may assign any of its rights, or delegate any of its duties or obligation, under this Agreement without the prior written consent of the other parties, and any such purported assignment or delegation shall be void AB INITIO. Notwithstanding the foregoing, VCA, its affiliates, and its successors and assigns, may assign its rights and delegate its duties to any successor entity resulting from any liquidation, merger, consolidation, reorganization, or transfer of all or substantially all of the assets or stock of VCA Sub or of VCA. Page 2 6.2 NOTICES. All notices, demands and other communications (collectively, "Notices") given or made pursuant to this Agreement shall be in writing and shall be deemed to have been duly given if sent by registered or certified mail, return receipt requested, postage and fees prepaid, by overnight service with a nationally recognized "next day" delivery company such as Federal Express or United Parcel Service, by facsimile transmission, or otherwise actually delivered to the following addresses: (a) if to VCA: Veterinary Centers of America, Inc., a Delaware corporation 12401 West Olympic Boulevard Santa Monica, California 90064-1022 Attn: President Facsimile No.: 310.584.6701 (b) if to Covenantor: Robert L. Antin c/o Veterinary Centers of America, Inc. 12401 West Olympic Boulevard Santa Monica, California 90064-1022 Facsimile No.: Any Notice shall be deemed duly given when received by the addressee thereof, provided that any Notice sent by registered or certified mail shall be deemed to have been duly given two (2) business days from the date of deposit in the United States mails, unless sooner received. Any of the parties to this Agreement may from time to time change its address for receiving notices by giving written notice thereof in the manner set forth above. 6.3 AMENDMENT; WAIVER. No provision of this Agreement may be waived unless in writing signed by all of the parties to this Agreement, and the waiver of any one provision of this Agreement shall not be deemed to be a waiver of any other provision. This Agreement may be amended only by a written agreement executed by all of the parties to this Agreement. 6.4 DISPUTE RESOLUTION. Any dispute or claim arising hereunder shall be settled by arbitration. Any party may commence arbitration by sending a written notice of arbitration to the other party. The notice will state the dispute with particularity. The arbitration hearing Page 3 shall be commenced thirty (30) days following the date of delivery of notice of arbitration by one party to the other, by a single arbitrator. The arbitration shall be conducted in Los Angeles, California in accordance with the commercial arbitration rules promulgated by the American Arbitration Association, and each party shall retain the right to cross-examine the opposing party's witnesses, either through legal counsel, expert witnesses or both. The decision of the arbitrator shall be final, binding and conclusive on all parties (without any right of appeal therefrom) and shall not be subject to judicial review. As part of its decision, the arbitration panel may allocate the cost of arbitration, including fees of attorneys and experts, as it deems fair and equitable in light of all relevant circumstances. Judgment on the award rendered by the arbitration panel may be entered in any court of competent jurisdiction. 6.5 GOVERNING LAW. This Agreement shall be governed by and construed both as to validity and performance and enforced in accordance with the laws of the State of California without giving effect to the choice of law principles thereof. 6.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 6.7 REMEDIES CUMULATIVE. Each of the various rights, powers and remedies shall be deemed to be cumulative with, and in addition to, all the rights, powers and remedies which each party may have hereunder or under applicable law relating hereto or to the subject matter hereof, and the exercise or partial exercise of any such right, power or remedy shall constitute neither an exclusive election thereof nor a waiver of any other such right, power or remedy. 6.8 HEADINGS. The section and subsection headings contained in this Agreement are included for convenience only and form no part of the agreement between the parties. 6.9 SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be or become prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 6.10 EXPENSES. Each party shall pay its own costs and expenses, including, without limitation, the fees and expenses of their respective counsel and financial advisors. Page 4 6.11 ENTIRE AGREEMENT. This Agreement, including the other agreements and schedules to be entered into in connection with the transactions contemplated by the Purchase Agreement, constitutes and embodies the entire understanding and agreement of the parties hereto relating to the subject matter hereof and there are no other agreements or understandings, written or oral, in effect between the parties relating to such subject matter except as expressly referred to herein. [Signatures appear on the following page] Page 5 IN WITNESS WHEREOF, the parties hereto have executed this Non-Competition Agreement as of the day and year first set forth above. COVENANTOR /S/ ROBERT L. ANTIN -------------------------------------------- Robert L. Antin VICAR OPERATING, INC., a Delaware corporation /S/ ROBERT L. ANTIN -------------------------------------------- By: Robert L. Antin Its: VETERINARY CENTERS OF AMERICA, INC., a Delaware corporation /S/ ROBERT L. ANTIN -------------------------------------------- By: Robert L. Antin Its: Page 6 EX-10 10 ex-10_6.txt EXHIBIT 10.6 - NON-COMPETE - A. ANTIN EXHIBIT 10.6 NON-COMPETITION AGREEMENT THIS NON-COMPETITION AGREEMENT (this "Agreement") is made and entered into as of the 20th day of September, 2000, by and among Veterinary Centers of America, Inc., a Delaware corporation ("VCA"), Vicar Operating, Inc., a Delaware corporation and a wholly owned subsidiary of the Company, ("VCA Sub"), and Arthur J. Antin ("Covenantor"). RECITALS Prior to the execution of this Agreement, the Company, Vicar Recap, Inc., a Delaware corporation and VCA Sub have entered into the Agreement and Plan of Merger dated as of March 30, 2000 (the "Merger Agreement"). Capitalized terms used and not defined herein shall have the meanings ascribed to them in the Merger Agreement. AGREEMENT NOW, THEREFORE, in reliance on the foregoing facts and in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. NON-COMPETITION. During the term hereof, Covenantor agrees that, within seven miles of any animal hospital or veterinary laboratory owned or operated by VCA or any affiliate of VCA (the "Radius"), he shall not, without the prior written consent of VCA, directly or indirectly, own, operate, manage, control, or participate in the ownership, management, operation or control of, or be connected as an officer, director, employee, owner, partner, member, manager or joint venturer or otherwise permit his name to be used by or in connection with any veterinary medical or laboratory practice. In connection with and in addition to the foregoing, Covenantor agrees during the term hereof not to: (i) hire or offer employment to any employee of VCA or any of their respective affiliates unless VCA first terminates the employment of such employee; or (ii) solicit, divert, or take away from VCA and its affiliates the business of any individual, corporation, trust, estate, partnership, joint venture, association, limited liability company, governmental bureau or other entity of whatsoever kind or nature ("Person") who or which at the time of the Closing or at any time within one (1) year prior to such time or at any time thereafter during the term hereof, was a customer of VCA. Notwithstanding anything to the contrary contained herein, Covenantor is expressly permitted prior to, during and after the term of this Agreement to own, operate, manage, control or participate in the ownership, management, operation or control of, and/or be connected as an officer, director, employee, owner, partner, member, manager or joint venturer and/or permit his name to be used by or in connection with any business whose primarily purpose is the development and/or operation of a commerce, content and/or community web site focused on veterinary and other pet related products, services and interests. 2. CONFIDENTIAL INFORMATION. Covenantor agrees that he will not, during the term of this Agreement, use or disclose to any Person other than VCA or its affiliates or their respective employees acting on behalf of VCA or its affiliates, any customer list, potential customer list, records, techniques, business secrets, trade secrets or any other information with respect to the business of VCA not available generally in the veterinary field and not known to competitors of VCA or its affiliates or other third parties unaffiliated with VCA or its affiliates ("Confidential Information"). 3. CONSIDERATION. As consideration for the covenants and agreements of Covenantor contained herein, VCA has paid to Covenantor on the Closing $3,960,225. 4. TERM AND TERMINATION. The term of this Agreement shall commence on the date hereof and shall terminate on that date which is three (3) years following the date hereof. Notwithstanding the foregoing, if Covenantor's employment is terminated without "cause" as defined in that certain Employment Agreement of even date herewith between Covenantor and VCA, then this Agreement immediately shall terminate and be of no further force or effect. 5. INJUNCTIVE RELIEF AND OTHER REMEDIES UPON BREACH BY COVENANTOR. Covenantor acknowledges and agrees that (i) the provisions of this Agreement are reasonable and necessary to protect the legitimate interests of VCA, and (ii) in the event of any breach by Covenantor of any of Covenantor's covenants and agreements contained herein, VCA would encounter extreme difficulty in attempting to prove the actual amount of damages suffered by it as a result of such breach, VCA would not have an adequate remedy at law in such event and, therefore, in addition to any other remedy it may have at law or in equity in the event of any such breach, VCA shall be entitled to seek and receive specific performance and temporary, preliminary and permanent injunctive relief from violation of any of the provisions of this Agreement from any court of competent jurisdiction without the necessity of proving the amount of any actual damages to it resulting from such breach. 6. MISCELLANEOUS. 6.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. No party may assign any of its rights, or delegate any of its duties or obligation, under this Agreement without the prior written consent of the other parties, and any such purported assignment or delegation shall be void AB INITIO. Notwithstanding the foregoing, VCA, its affiliates, and its successors and assigns, may assign its rights and delegate its duties to any successor entity resulting from any liquidation, merger, consolidation, reorganization, or transfer of all or substantially all of the assets or stock of VCA Sub or of VCA. Page 2 6.2 NOTICES. All notices, demands and other communications (collectively, "Notices") given or made pursuant to this Agreement shall be in writing and shall be deemed to have been duly given if sent by registered or certified mail, return receipt requested, postage and fees prepaid, by overnight service with a nationally recognized "next day" delivery company such as Federal Express or United Parcel Service, by facsimile transmission, or otherwise actually delivered to the following addresses: (a) if to VCA: Veterinary Centers of America, Inc., a Delaware corporation 12401 West Olympic Boulevard Santa Monica, California 90064-1022 Attn: President Facsimile No.: 310.584.6701 (b) if to Covenantor: Arthur J. Antin c/o Veterinary Centers of America, Inc. 12401 West Olympic Boulevard Santa Monica, California 90064-1022 Facsimile No.: Any Notice shall be deemed duly given when received by the addressee thereof, provided that any Notice sent by registered or certified mail shall be deemed to have been duly given two (2) business days from the date of deposit in the United States mails, unless sooner received. Any of the parties to this Agreement may from time to time change its address for receiving notices by giving written notice thereof in the manner set forth above. 6.3 AMENDMENT; WAIVER. No provision of this Agreement may be waived unless in writing signed by all of the parties to this Agreement, and the waiver of any one provision of this Agreement shall not be deemed to be a waiver of any other provision. This Agreement may be amended only by a written agreement executed by all of the parties to this Agreement. 6.4 DISPUTE RESOLUTION. Any dispute or claim arising hereunder shall be settled by arbitration. Any party may commence arbitration by sending a written notice of arbitration to the other party. The notice will state the dispute with particularity. The arbitration hearing Page 3 shall be commenced thirty (30) days following the date of delivery of notice of arbitration by one party to the other, by a single arbitrator. The arbitration shall be conducted in Los Angeles, California in accordance with the commercial arbitration rules promulgated by the American Arbitration Association, and each party shall retain the right to cross-examine the opposing party's witnesses, either through legal counsel, expert witnesses or both. The decision of the arbitrator shall be final, binding and conclusive on all parties (without any right of appeal therefrom) and shall not be subject to judicial review. As part of its decision, the arbitration panel may allocate the cost of arbitration, including fees of attorneys and experts, as it deems fair and equitable in light of all relevant circumstances. Judgment on the award rendered by the arbitration panel may be entered in any court of competent jurisdiction. 6.5 GOVERNING LAW. This Agreement shall be governed by and construed both as to validity and performance and enforced in accordance with the laws of the State of California without giving effect to the choice of law principles thereof. 6.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 6.7 REMEDIES CUMULATIVE. Each of the various rights, powers and remedies shall be deemed to be cumulative with, and in addition to, all the rights, powers and remedies which each party may have hereunder or under applicable law relating hereto or to the subject matter hereof, and the exercise or partial exercise of any such right, power or remedy shall constitute neither an exclusive election thereof nor a waiver of any other such right, power or remedy. 6.8 HEADINGS. The section and subsection headings contained in this Agreement are included for convenience only and form no part of the agreement between the parties. 6.9 SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be or become prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 6.10 EXPENSES. Each party shall pay its own costs and expenses, including, without limitation, the fees and expenses of their respective counsel and financial advisors. Page 4 6.11 ENTIRE AGREEMENT. This Agreement, including the other agreements and schedules to be entered into in connection with the transactions contemplated by the Purchase Agreement, constitutes and embodies the entire understanding and agreement of the parties hereto relating to the subject matter hereof and there are no other agreements or understandings, written or oral, in effect between the parties relating to such subject matter except as expressly referred to herein. [Signatures appear on the following page] Page 5 IN WITNESS WHEREOF, the parties hereto have executed this Non-Competition Agreement as of the day and year first set forth above. COVENANTOR /S/ ARTHUR J. ANTIN -------------------------------------------- Arthur J. Antin VICAR OPERATING, INC., a Delaware corporation /S/ ROBERT L. ANTIN -------------------------------------------- By: Robert L. Antin Its: VETERINARY CENTERS OF AMERICA, INC., a Delaware corporation /S/ ROBERT L. ANTIN -------------------------------------------- By: Robert L. Antin Its: Page 6 EX-10 11 ex-10_7.txt EXHIBIT 10.7 - NON-COMPETE - FULLER EXHIBIT 10.7 NON-COMPETITION AGREEMENT THIS NON-COMPETITION AGREEMENT (this "Agreement") is made and entered into as of the 20th day of September, 2000, by and among Veterinary Centers of America, Inc., a Delaware corporation ("VCA"), Vicar Operating, Inc., a Delaware corporation and a wholly owned subsidiary of the Company, ("VCA Sub"), and Tomas W. Fuller ("Covenantor"). RECITALS Prior to the execution of this Agreement, the Company, Vicar Recap, Inc., a Delaware corporation and VCA Sub have entered into the Agreement and Plan of Merger dated as of March 30, 2000 (the "Merger Agreement"). Capitalized terms used and not defined herein shall have the meanings ascribed to them in the Merger Agreement. AGREEMENT NOW, THEREFORE, in reliance on the foregoing facts and in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. NON-COMPETITION. During the term hereof, Covenantor agrees that, within seven miles of any animal hospital or veterinary laboratory owned or operated by VCA or any affiliate of VCA (the "Radius"), he shall not, without the prior written consent of VCA, directly or indirectly, own, operate, manage, control, or participate in the ownership, management, operation or control of, or be connected as an officer, director, employee, owner, partner, member, manager or joint venturer or otherwise permit his name to be used by or in connection with any veterinary medical or laboratory practice. In connection with and in addition to the foregoing, Covenantor agrees during the term hereof not to: (i) hire or offer employment to any employee of VCA or any of their respective affiliates unless VCA first terminates the employment of such employee; or (ii) solicit, divert, or take away from VCA and its affiliates the business of any individual, corporation, trust, estate, partnership, joint venture, association, limited liability company, governmental bureau or other entity of whatsoever kind or nature ("Person") who or which at the time of the Closing or at any time within one (1) year prior to such time or at any time thereafter during the term hereof, was a customer of VCA. Notwithstanding anything to the contrary contained herein, Covenantor is expressly permitted prior to, during and after the term of this Agreement to own, operate, manage, control or participate in the ownership, management, operation or control of, and/or be connected as an officer, director, employee, owner, partner, member, manager or joint venturer and/or permit his name to be used by or in connection with any business whose primarily purpose is the development and/or operation of a commerce, content and/or community web site focused on veterinary and other pet related products, services and interests. 2. CONFIDENTIAL INFORMATION. Covenantor agrees that he will not, during the term of this Agreement, use or disclose to any Person other than VCA or its affiliates or their respective employees acting on behalf of VCA or its affiliates, any customer list, potential customer list, records, techniques, business secrets, trade secrets or any other information with respect to the business of VCA not available generally in the veterinary field and not known to competitors of VCA or its affiliates or other third parties unaffiliated with VCA or its affiliates ("Confidential Information"). 3. CONSIDERATION. As consideration for the covenants and agreements of Covenantor contained herein, VCA has paid to Covenantor on the Closing $2,536,550. 4. TERM AND TERMINATION. The term of this Agreement shall commence on the date hereof and shall terminate on that date which is three (3) years following the date hereof. Notwithstanding the foregoing, if Covenantor's employment is terminated without "cause" as defined in that certain Employment Agreement of even date herewith between Covenantor and VCA, then this Agreement immediately shall terminate and be of no further force or effect. 5. INJUNCTIVE RELIEF AND OTHER REMEDIES UPON BREACH BY COVENANTOR. Covenantor acknowledges and agrees that (i) the provisions of this Agreement are reasonable and necessary to protect the legitimate interests of VCA, and (ii) in the event of any breach by Covenantor of any of Covenantor's covenants and agreements contained herein, VCA would encounter extreme difficulty in attempting to prove the actual amount of damages suffered by it as a result of such breach, VCA would not have an adequate remedy at law in such event and, therefore, in addition to any other remedy it may have at law or in equity in the event of any such breach, VCA shall be entitled to seek and receive specific performance and temporary, preliminary and permanent injunctive relief from violation of any of the provisions of this Agreement from any court of competent jurisdiction without the necessity of proving the amount of any actual damages to it resulting from such breach. 6. MISCELLANEOUS. 6.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. No party may assign any of its rights, or delegate any of its duties or obligation, under this Agreement without the prior written consent of the other parties, and any such purported assignment or delegation shall be void AB INITIO. Notwithstanding the foregoing, VCA, its affiliates, and its successors and assigns, may assign its rights and delegate its duties to any successor entity resulting from any liquidation, merger, consolidation, reorganization, or transfer of all or substantially all of the assets or stock of VCA Sub or of VCA. Page 2 6.2 NOTICES. All notices, demands and other communications (collectively, "Notices") given or made pursuant to this Agreement shall be in writing and shall be deemed to have been duly given if sent by registered or certified mail, return receipt requested, postage and fees prepaid, by overnight service with a nationally recognized "next day" delivery company such as Federal Express or United Parcel Service, by facsimile transmission, or otherwise actually delivered to the following addresses: (a) if to VCA: Veterinary Centers of America, Inc., a Delaware corporation 12401 West Olympic Boulevard Santa Monica, California 90064-1022 Attn: President Facsimile No.: 310.584.6701 (b) if to Covenantor: Tomas W. Fuller c/o Veterinary Centers of America, Inc. 12401 West Olympic Boulevard Santa Monica, California 90064-1022 Facsimile No.: Any Notice shall be deemed duly given when received by the addressee thereof, provided that any Notice sent by registered or certified mail shall be deemed to have been duly given two (2) business days from the date of deposit in the United States mails, unless sooner received. Any of the parties to this Agreement may from time to time change its address for receiving notices by giving written notice thereof in the manner set forth above. 6.3 AMENDMENT; WAIVER. No provision of this Agreement may be waived unless in writing signed by all of the parties to this Agreement, and the waiver of any one provision of this Agreement shall not be deemed to be a waiver of any other provision. This Agreement may be amended only by a written agreement executed by all of the parties to this Agreement. 6.4 DISPUTE RESOLUTION. Any dispute or claim arising hereunder shall be settled by arbitration. Any party may commence arbitration by sending a written notice of arbitration to the other party. The notice will state the dispute with particularity. The arbitration hearing Page 3 shall be commenced thirty (30) days following the date of delivery of notice of arbitration by one party to the other, by a single arbitrator. The arbitration shall be conducted in Los Angeles, California in accordance with the commercial arbitration rules promulgated by the American Arbitration Association, and each party shall retain the right to cross-examine the opposing party's witnesses, either through legal counsel, expert witnesses or both. The decision of the arbitrator shall be final, binding and conclusive on all parties (without any right of appeal therefrom) and shall not be subject to judicial review. As part of its decision, the arbitration panel may allocate the cost of arbitration, including fees of attorneys and experts, as it deems fair and equitable in light of all relevant circumstances. Judgment on the award rendered by the arbitration panel may be entered in any court of competent jurisdiction. 6.5 GOVERNING LAW. This Agreement shall be governed by and construed both as to validity and performance and enforced in accordance with the laws of the State of California without giving effect to the choice of law principles thereof. 6.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 6.7 REMEDIES CUMULATIVE. Each of the various rights, powers and remedies shall be deemed to be cumulative with, and in addition to, all the rights, powers and remedies which each party may have hereunder or under applicable law relating hereto or to the subject matter hereof, and the exercise or partial exercise of any such right, power or remedy shall constitute neither an exclusive election thereof nor a waiver of any other such right, power or remedy. 6.8 HEADINGS. The section and subsection headings contained in this Agreement are included for convenience only and form no part of the agreement between the parties. 6.9 SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be or become prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 6.10 EXPENSES. Each party shall pay its own costs and expenses, including, without limitation, the fees and expenses of their respective counsel and financial advisors. Page 4 6.11 ENTIRE AGREEMENT. This Agreement, including the other agreements and schedules to be entered into in connection with the transactions contemplated by the Purchase Agreement, constitutes and embodies the entire understanding and agreement of the parties hereto relating to the subject matter hereof and there are no other agreements or understandings, written or oral, in effect between the parties relating to such subject matter except as expressly referred to herein. [Signatures appear on the following page] Page 5 IN WITNESS WHEREOF, the parties hereto have executed this Non-Competition Agreement as of the day and year first set forth above. COVENANTOR /S/ TOMAS W. FULLER -------------------------------------------- Tomas W. Fuller VICAR OPERATING, INC., a Delaware corporation /S/ ROBERT L. ANTIN -------------------------------------------- By: Robert L. Antin Its: VETERINARY CENTERS OF AMERICA, INC., a Delaware corporation /S/ ROBERT L. ANTIN -------------------------------------------- By: Robert L. Antin Its: Page 6 EX-10 12 ex-10_8.txt EXHIBIT 10.8 - NON-COMPETE - TAUBER EXHIBIT 10.8 NON-COMPETITION AGREEMENT THIS NON-COMPETITION AGREEMENT (this "Agreement") is made and entered into as of the 20th day of September, 2000, by and among Veterinary Centers of America, Inc., a Delaware corporation ("VCA"), Vicar Operating, Inc., a Delaware corporation and a wholly owned subsidiary of the Company, ("VCA Sub"), and Neil Tauber ("Covenantor"). RECITALS Prior to the execution of this Agreement, the Company, Vicar Recap, Inc., a Delaware corporation and VCA Sub have entered into the Agreement and Plan of Merger dated as of March 30, 2000 (the "Merger Agreement"). Capitalized terms used and not defined herein shall have the meanings ascribed to them in the Merger Agreement. AGREEMENT NOW, THEREFORE, in reliance on the foregoing facts and in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. NON-COMPETITION. During the term hereof, Covenantor agrees that, within seven miles of any animal hospital or veterinary laboratory owned or operated by VCA or any affiliate of VCA (the "Radius"), he shall not, without the prior written consent of VCA, directly or indirectly, own, operate, manage, control, or participate in the ownership, management, operation or control of, or be connected as an officer, director, employee, owner, partner, member, manager or joint venturer or otherwise permit his name to be used by or in connection with any veterinary medical or laboratory practice. In connection with and in addition to the foregoing, Covenantor agrees during the term hereof not to: (i) hire or offer employment to any employee of VCA or any of their respective affiliates unless VCA first terminates the employment of such employee; or (ii) solicit, divert, or take away from VCA and its affiliates the business of any individual, corporation, trust, estate, partnership, joint venture, association, limited liability company, governmental bureau or other entity of whatsoever kind or nature ("Person") who or which at the time of the Closing or at any time within one (1) year prior to such time or at any time thereafter during the term hereof, was a customer of VCA. Notwithstanding anything to the contrary contained herein, Covenantor is expressly permitted prior to, during and after the term of this Agreement to own, operate, manage, control or participate in the ownership, management, operation or control of, and/or be connected as an officer, director, employee, owner, partner, member, manager or joint venturer and/or permit his name to be used by or in connection with any business whose primarily purpose is the development and/or operation of a commerce, content and/or community web site focused on veterinary and other pet related products, services and interests. 2. CONFIDENTIAL INFORMATION. Covenantor agrees that he will not, during the term of this Agreement, use or disclose to any Person other than VCA or its affiliates or their respective employees acting on behalf of VCA or its affiliates, any customer list, potential customer list, records, techniques, business secrets, trade secrets or any other information with respect to the business of VCA not available generally in the veterinary field and not known to competitors of VCA or its affiliates or other third parties unaffiliated with VCA or its affiliates ("Confidential Information"). 3. CONSIDERATION. As consideration for the covenants and agreements of Covenantor contained herein, VCA has paid to Covenantor on the Closing $2,666,350. 4. TERM AND TERMINATION. The term of this Agreement shall commence on the date hereof and shall terminate on that date which is three (3) years following the date hereof. Notwithstanding the foregoing, if Covenantor's employment is terminated without "cause" as defined in that certain Employment Agreement of even date herewith between Covenantor and VCA, then this Agreement immediately shall terminate and be of no further force or effect. 5. INJUNCTIVE RELIEF AND OTHER REMEDIES UPON BREACH BY COVENANTOR. Covenantor acknowledges and agrees that (i) the provisions of this Agreement are reasonable and necessary to protect the legitimate interests of VCA, and (ii) in the event of any breach by Covenantor of any of Covenantor's covenants and agreements contained herein, VCA would encounter extreme difficulty in attempting to prove the actual amount of damages suffered by it as a result of such breach, VCA would not have an adequate remedy at law in such event and, therefore, in addition to any other remedy it may have at law or in equity in the event of any such breach, VCA shall be entitled to seek and receive specific performance and temporary, preliminary and permanent injunctive relief from violation of any of the provisions of this Agreement from any court of competent jurisdiction without the necessity of proving the amount of any actual damages to it resulting from such breach. 6. MISCELLANEOUS. 6.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. No party may assign any of its rights, or delegate any of its duties or obligation, under this Agreement without the prior written consent of the other parties, and any such purported assignment or delegation shall be void AB INITIO. Notwithstanding the foregoing, VCA, its affiliates, and its successors and assigns, may assign its rights and delegate its duties to any successor entity resulting from any liquidation, merger, consolidation, reorganization, or transfer of all or substantially all of the assets or stock of VCA Sub or of VCA. Page 2 6.2 NOTICES. All notices, demands and other communications (collectively, "Notices") given or made pursuant to this Agreement shall be in writing and shall be deemed to have been duly given if sent by registered or certified mail, return receipt requested, postage and fees prepaid, by overnight service with a nationally recognized "next day" delivery company such as Federal Express or United Parcel Service, by facsimile transmission, or otherwise actually delivered to the following addresses: (a) if to VCA: Veterinary Centers of America, Inc., a Delaware corporation 12401 West Olympic Boulevard Santa Monica, California 90064-1022 Attn: President Facsimile No.: 310.584.6701 (b) if to Covenantor: Neil Tauber c/o Veterinary Centers of America, Inc. 12401 West Olympic Boulevard Santa Monica, California 90064-1022 Facsimile No.: Any Notice shall be deemed duly given when received by the addressee thereof, provided that any Notice sent by registered or certified mail shall be deemed to have been duly given two (2) business days from the date of deposit in the United States mails, unless sooner received. Any of the parties to this Agreement may from time to time change its address for receiving notices by giving written notice thereof in the manner set forth above. 6.3 AMENDMENT; WAIVER. No provision of this Agreement may be waived unless in writing signed by all of the parties to this Agreement, and the waiver of any one provision of this Agreement shall not be deemed to be a waiver of any other provision. This Agreement may be amended only by a written agreement executed by all of the parties to this Agreement. 6.4 DISPUTE RESOLUTION. Any dispute or claim arising hereunder shall be settled by arbitration. Any party may commence arbitration by sending a written notice of arbitration to the other party. The notice will state the dispute with particularity. The arbitration hearing Page 3 shall be commenced thirty (30) days following the date of delivery of notice of arbitration by one party to the other, by a single arbitrator. The arbitration shall be conducted in Los Angeles, California in accordance with the commercial arbitration rules promulgated by the American Arbitration Association, and each party shall retain the right to cross-examine the opposing party's witnesses, either through legal counsel, expert witnesses or both. The decision of the arbitrator shall be final, binding and conclusive on all parties (without any right of appeal therefrom) and shall not be subject to judicial review. As part of its decision, the arbitration panel may allocate the cost of arbitration, including fees of attorneys and experts, as it deems fair and equitable in light of all relevant circumstances. Judgment on the award rendered by the arbitration panel may be entered in any court of competent jurisdiction. 6.5 GOVERNING LAW. This Agreement shall be governed by and construed both as to validity and performance and enforced in accordance with the laws of the State of California without giving effect to the choice of law principles thereof. 6.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 6.7 REMEDIES CUMULATIVE. Each of the various rights, powers and remedies shall be deemed to be cumulative with, and in addition to, all the rights, powers and remedies which each party may have hereunder or under applicable law relating hereto or to the subject matter hereof, and the exercise or partial exercise of any such right, power or remedy shall constitute neither an exclusive election thereof nor a waiver of any other such right, power or remedy. 6.8 HEADINGS. The section and subsection headings contained in this Agreement are included for convenience only and form no part of the agreement between the parties. 6.9 SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be or become prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 6.10 EXPENSES. Each party shall pay its own costs and expenses, including, without limitation, the fees and expenses of their respective counsel and financial advisors. Page 4 6.11 ENTIRE AGREEMENT. This Agreement, including the other agreements and schedules to be entered into in connection with the transactions contemplated by the Purchase Agreement, constitutes and embodies the entire understanding and agreement of the parties hereto relating to the subject matter hereof and there are no other agreements or understandings, written or oral, in effect between the parties relating to such subject matter except as expressly referred to herein. [Signatures appear on the following page] Page 5 IN WITNESS WHEREOF, the parties hereto have executed this Non-Competition Agreement as of the day and year first set forth above. COVENANTOR /S/ NEIL TAUBER -------------------------------------------- Neil Tauber VICAR OPERATING, INC., a Delaware corporation /S/ ROBERT L. ANTIN -------------------------------------------- By: Robert L. Antin Its: VETERINARY CENTERS OF AMERICA, INC., a Delaware corporation /S/ ROBERT L. ANTIN -------------------------------------------- By: Robert L. Antin Its: Page 6 EX-10 13 ex-10_12.txt EXHIBIT 10.12 - MANAGEMENT SERVICES AGMT. EXHIBIT 10.12 MANAGEMENT SERVICES AGREEMENT This MANAGEMENT SERVICES AGREEMENT (this "Management Agreement"), dated as of September 20, 2000, is made by and between Veterinary Centers of America, Inc., a Delaware corporation ("VCA"), and Vicar Operating, Inc., a Delaware corporation ("Operating Company"), on the one hand (jointly and severally, the "Company"), and Leonard Green & Partners, L.P. ("LGP"), on the other hand. WHEREAS, the Company desires to obtain from LGP, and LGP desires to provide, certain investment banking, management, consulting and financial planning services on an ongoing basis and certain financial advisory and investment banking services in connection with major financial transactions that may be undertaken by the Company from time to time in the future; WHEREAS, VCA has recently consummated the merger of Vicar Recap, Inc., a Delaware corporation ("Recap"), with and into VCA pursuant to the Amended and Restated Agreement and Plan of Merger (the "Merger Agreement"), dated as of August 11, 2000, by and among VCA, Operating Company and Recap, as the same may be amended from time to time; WHEREAS, this Management Agreement has been approved by VCA's and Operating Company's respective boards of directors, including a majority of the members of VCA's board of directors who have not been nominated by Green Equity Investors III, L.P., a Delaware limited partnership ("GEI III"), or its affiliates; and WHEREAS, this Management Agreement has been approved by a majority of VCA's and Operating Company's respective stockholders, including a majority of VCA's stockholders other than GEI III or its affiliates. NOW, THEREFORE, in consideration of their mutual promises made herein, and for other good and valuable consideration, receipt of which is hereby acknowledged by each party, the parties, intending to be legally bound, hereby agree as follows: 1. RETENTION OF SERVICES. 1.1 INVESTMENT BANKING SERVICES. Subject to the terms and conditions hereof, the Company hereby retains LGP, and LGP hereby agrees to be retained by the Company, to provide investment banking services to the Company. 1.2 GENERAL SERVICES. Subject to the terms and conditions hereof, the Company hereby retains LGP, and LGP hereby agrees to be retained by the Company, to provide management, consulting and financial planning services to the Company on an ongoing basis in connection with the operation and growth of the Company and its subsidiaries during the term of this Management Agreement (the "General Services"). 1.3 MAJOR TRANSACTION SERVICES. Subject to the terms and conditions hereof, the Company hereby retains LGP, and LGP hereby agrees to be retained by the Company, to provide financial advisory and investment banking services to the Company in connection with major financial transactions that may be undertaken from time to time in the future (the "Major Transaction Services" and, together with the General Services, the "Services"). 2. COMPENSATION. 2.1 GENERAL SERVICES FEE. In consideration of the General Services, the Company shall pay LGP an annual fee payable in cash equal to $2,480,000, which annual fee shall be increased (a "Fee Increase") by 1.6% of any additional capital invested by GEI III, any of its affiliates, or any of its co-investors in the Company (such annual fee, as adjusted if applicable, shall be referred to as the "Annual Fee"). Any such increase shall take effect in the year such additional investment is made and shall apply to the Annual Fee for such year and each subsequent year, regardless of the time of the year such investment is made. The Annual Fee shall be payable by the Company in equal monthly installments (subject to any additional amounts necessary to be paid to satisfy its obligation with respect to a Fee Increase in the year such Fee Increase occurs), in advance, on the first business day of each month commencing on the first such day following the date hereof, without regard to the amount of services actually performed by LGP. 2.2 MAJOR TRANSACTION SERVICES FEE. In consideration of any Major Transaction Services provided by LGP from time to time, the Company shall pay LGP normal and customary fees for services of like kind, taking into consideration all relevant factors, including, but not limited to, the complexity of the subject transaction, the time devoted to providing such services and the value of LGP's investment banking expertise and relationships within the business and financial community. 2.3 STRUCTURING FEE. In connection with the Services provided to Recap in connection with the transactions contemplated by, and pursuant to the terms of, the Merger Agreement, the Company acknowledges its obligation to pay to LGP a structuring fee of $7,500,000, payable in cash. 2.4 EXPENSES. In addition to the fees to be paid to LGP under Sections 2.1, 2.2 and 2.3 hereof, the Company shall pay to, or on behalf of, LGP, promptly as billed, all reasonable and documented out-of-pocket expenses incurred by LGP in connection with the Services rendered hereunder. Such expenses shall include, among other things, fees and disbursements of counsel, travel expenses, word processing charges, messenger and duplicating services, telephone and facsimile expenses, and other customary expenditures. 3. TERM. 3.1 TERMINATION. This Management Agreement shall terminate on the tenth anniversary of this Management Agreement. 3.2 SURVIVAL OF CERTAIN OBLIGATIONS. Notwithstanding any other provision hereof, the obligations of the Company to pay amounts due with respect to periods prior to the termination hereof pursuant to Section 2 hereof and the provisions of Sections 4 and 5 hereof shall survive any termination of this Management Agreement. Page 2 4. DECISIONS/AUTHORITY OF ADVISOR. 4.1 LIMITATION ON LGP LIABILITY. The Company reserves the right to make all decisions with regard to any matter upon which LGP has rendered its advice and consultation, and there shall be no liability to LGP for any such advice accepted by the Company pursuant to the provisions of this Management Agreement. 4.2 INDEPENDENT CONTRACTOR. LGP shall act solely as an independent contractor and shall have complete charge of its personnel engaged in the performance of the Services. As an independent contractor, LGP shall have authority only to act as an advisor to the Company and shall have no authority to enter into any agreement or to make any representation, commitment or warranty binding upon the Company or to obtain or incur any right, obligation or liability on behalf of the Company. Nothing contained in this Management Agreement shall constitute LGP or any of its affiliates a partner of, or joint venturer with, the Company. 5. INDEMNIFICATION. 5.1 INDEMNIFICATION/REIMBURSEMENT OF EXPENSES. The Company shall (i) indemnify LGP, GEI III, and their respective affiliates, and the partners, directors, officers, employees, agents and controlling persons of LGP, GEI III and their respective affiliates (collectively, the "Indemnified Parties"), to the fullest extent permitted by law, from and against any and all losses, claims, damages and liabilities, joint or several, to which any Indemnified Party may become subject, caused by, related to or arising out of the Services or any other advice or services contemplated by this Management Agreement or the engagement of LGP pursuant to, and the performance by LGP of the Services contemplated by, this Management Agreement, and (ii) promptly reimburse each Indemnified Party for all costs and expenses (including reasonable and documented attorneys' fees and expenses), as incurred, in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party and whether or not such claim, action or proceeding is initiated or brought by, or on behalf of, the Company and whether or not resulting in any liability. 5.2 LIMITED LIABILITY. The Company shall not be liable under the indemnification contained in Section 5.1 hereof to the extent that such loss, claim, damage, liability, cost or expense is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from LGP's willful misconduct or gross negligence. The Company further agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract, tort or otherwise) to the Company, holders of securities of the Company or creditors of the Company related to or arising out of the engagement of LGP pursuant to, or the performance by LGP of the Services contemplated by, this Management Agreement. 6. MISCELLANEOUS. 6.1 ASSIGNMENT. None of the parties hereto shall assign this Management Agreement or the rights and obligations hereunder, in whole or in part, without the prior written consent of the other parties; PROVIDED, HOWEVER, that, without obtaining such consent, Page 3 LGP may assign this Management Agreement or its rights and obligations hereunder to: (i) any of its affiliates; (ii) any investment manager, investment advisor or partner of LGP, or any principal or beneficial owner of any of the foregoing; or (iii) any investment fund, investment account or investment entity whose investment manager, investment advisor or partner, or any principal or beneficial owner of any of the foregoing, is either LGP or any person identified in (i) or (ii) above. Subject to the foregoing, this Management Agreement will be binding upon and inure solely to the benefit of the parties hereto and their respective successors and assigns, and no other person shall acquire or have any right hereunder or by virtue hereof. 6.2 GOVERNING LAW. This Management Agreement shall be governed by and construed in accordance with the laws of the State of Delaware as applied to contracts made and performed within the State of Delaware without regard to principles of conflict of laws. 6.3 SEVERABILITY. If any term, provision, covenant or restriction of this Management Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. 6.4 ENTIRE AGREEMENT. This Management Agreement contains the entire agreement between the parties with respect to the subject matter of this Management Agreement and supersedes all written or verbal representations, warranties, commitments and other understandings with respect to the subject matter of this Management Agreement prior to the date of this Management Agreement. 6.5 FURTHER ASSURANCES. Each party hereto agrees to use all reasonable efforts to obtain all consents and approvals and to do all other things necessary to consummate the transactions contemplated by this Management Agreement. The parties agree to take such further action and to deliver or cause to be delivered any additional agreements or instruments as any of them may reasonably request for the purpose of carrying out this Management Agreement and the agreements and transactions contemplated hereby. 6.6 ATTORNEYS' FEES. In any action or proceeding brought to enforce any provision of this Management Agreement, or where any provision hereof is validly asserted as a defense, the prevailing party, as determined by a court of competent jurisdiction, shall be entitled to recover reasonable and documented attorneys' fees in addition to any other available remedy. 6.7 HEADINGS. The headings in this Management Agreement are for convenience and reference only and shall not limit or otherwise affect the meaning hereof. Page 4 6.8 AMENDMENT AND WAIVER. This Management Agreement may be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may be given, provided that the same are in writing and signed by each of the parties hereto. 6.9 COUNTERPARTS. This Management Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Page 5 IN WITNESS WHEREOF, the parties have executed this Management Services Agreement on the date first appearing above. VETERINARY CENTERS OF AMERICA, INC. By: /S/ ROBERT L. ANTIN ------------------------------------ Name: Robert L. Antin ------------------------------ Title: ------------------------------ VICAR OPERATING, INC. By: /S/ ROBERT L. ANTIN ------------------------------------ Name: Robert L. Antin ------------------------------ Title: ------------------------------ LEONARD GREEN & PARTNERS, L.P. By: LGP Management, Inc. By: /S/ JOHN DANHAKL ------------------------------------ Name: John Danhakl ------------------------------ Title: ------------------------------ Page 6 EX-10 14 ex-10_13.txt EXHIBIT 10.13 - INDEMNIFICATION AGMT. EXHIBIT 10.13 FORM OF INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made as of this 6th day of August, 2001, by and between VCA ANTECH, INCORPORATED, a Delaware corporation (the "Company"), and ___________, an individual ("Indemnitee"). RECITALS A. The Company and Indemnitee recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees and agents to expensive litigation risk at the same time that the availability and coverage of liability insurance has been severely limited. B. The Company's Bylaws permit contracts between the Company and the directors, officers, employees and agents of the Company with respect to indemnification of such directors, officers, employees and agents. C. Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and other directors, officers, employees and agents of the Company may not be willing to continue to serve as directors, officers, employees and agents without additional protection. D. The Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve as directors, officers, employees and agents of the Company and to indemnify its directors, officers, employees and agents so as to provide them with the maximum protection permitted by law. AGREEMENT The Company and Indemnitee hereby agree as follows: 1. AGREEMENT TO SERVE. Indemnitee agrees to serve and/or continue to serve the Company, in the capacity Indemnitee currently serves the Company. However, this Agreement shall not impose any obligation on Indemnitee or the Company to continue Indemnitee's service to the Company beyond any period otherwise required by law or by other agreements or commitments of the parties, if any. Nothing contained in this Agreement is intended to or shall create any right (express or implied) to continued employment by Indemnitee. 2. INDEMNIFICATION. 2.1 THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, whether formal or informal (a "PROCEEDING") (other than an action by or in the right of the Company) by reason in whole or in part of: (i) the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, (ii) any action or inaction on the part of Indemnitee while a director, officer, employee or agent of the Company, or any subsidiary of the Company, or (iii) the fact that Indemnitee is or was serving at the request Page 1 of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (subsections (i), (ii) and (iii) together, the Indemnitee's "CORPORATE STATUS"), against all expenses (including, without limitation, attorneys' fees, disbursements and retainers, accounting and witness fees, court costs, expenses of investigation, transcript costs, fees of experts, travel and deposition costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating or being or preparing to be a witness in a Proceeding (collectively, "EXPENSES")), judgments, penalties, fines and amounts paid in settlement (if such settlement is approved in advance by the Company which approval shall not be unreasonably withheld) and other amounts actually and reasonably incurred by Indemnitee, in connection with such Proceeding, to the fullest extent permissible under Delaware Law as currently in effect and as may be expanded in the future if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal proceeding, had no reasonable cause to believe the conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that indemnification is unavailable under this Agreement. 2.2 PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any Proceeding by or in the right of the Company or any subsidiary of the Company arising in whole or in part out of Indemnitee's Corporate Status against Expenses, judgments, penalties, fines and amounts paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee in connection with such Proceeding, to the fullest extent permissible under Delaware Law as currently in effect and as may be expanded in the future if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company. 2.3 MANDATORY PAYMENT OF EXPENSES. Notwithstanding any limitations or conditions upon the Company's indemnification obligations set forth in SECTIONS 2.1 and 2.2 above, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding referred to in SECTIONS 2.1 and 2.2 or in defense of any claim, issue or matter therein, Indemnitee shall be indemnified against Expenses actually and reasonably incurred by Indemnitee in connection therewith. 2.4 INDEMNIFICATION FOR SERVING AS A WITNESS. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of Indemnitee's Corporate Status, a witness in any Proceeding, Indemnitee shall be indemnified against Expenses actually and reasonably incurred by Indemnitee in connection therewith. 3. EXPENSES; INDEMNIFICATION PROCEDURE. 3.1 ADVANCEMENT OF EXPENSES. The Company shall advance all Expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any Proceeding referenced in SECTIONS 2.1 or 2.2 hereof. The advances to be made hereunder shall be paid by the Company to Indemnitee within 30 days following delivery of a written request Page 2 therefor by Indemnitee to the Company. Such written request shall reasonably evidence the Expenses incurred by Indemnitee. Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. Indemnitee shall have 30 days following such determination to reimburse the Company of any advances Indemnitee is not entitled to be indemnified by the Company. 3.2 NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition precedent to his right to be indemnified under this Agreement, give the Company prompt notice, in accordance with SECTION 14 hereof, of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Financial Officer of the Company at the principal executive offices of the Company. In addition, Indemnitee shall give the Company, at the Company's expense, such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. 3.3 PROCEDURE. Any indemnification and advances provided for in SECTION 2 and this SECTION 3 shall be made no later than 30 days after receipt of the written request of Indemnitee. If a claim under this Agreement is not paid in full by the Company within 30 days after a written request for payment therefor has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to SECTION 13 of this Agreement, Indemnitee shall also be entitled to be paid for the Expenses for bringing such an action. It shall be a defense to any such action (other than an action brought to enforce a claim for Expenses incurred in connection with any Proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of Expenses pursuant to SECTION 3.1 unless and until such defense is finally adjudicated by court order or judgment from which no further right of appeal exists. It is the intention of the parties that if the Company contests Indemnitee's right to indemnification under this Agreement or applicable law, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its officers, its Board, any committee or subgroup of its Board, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by this Agreement or by applicable law, nor an actual determination by the Company (including its officers, its Board, any committee or subgroup of its Board, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has not met the applicable standard of conduct. 3.4 NOTICE TO INSURERS. If, at the time of the receipt of a notice of a claim pursuant to Section 3.2 hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of receipt of a claim or the commencement of a Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies. Page 3 3.5 SELECTION OF COUNSEL. In the event the Company shall be obligated under SECTION 3.1 hereof to pay the Expenses of any Proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such Proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do, provided, however, that (i) the Company shall have no right to assume the defense of any Proceeding which seeks, in whole or in part, any remedy other than monetary damages (e.g., injunction, specific performance, criminal sanctions) or which could, if Indemnitee were not to prevail therein, materially damage Indemnitee's personal or business reputation, and (ii) the Company shall have no right to assume the defense of any Proceeding unless the Company first agrees fully and unconditionally, in writing, that the Company is obligated to indemnify Indemnitee in full with respect thereto, and waives any and all defenses, counterclaims or set-offs which might otherwise be asserted in limitation or mitigation of such indemnification obligation. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Proceeding, provided that (i) Indemnitee shall have the right to employ separate counsel in any such Proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such Proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. 4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY. 4.1 SCOPE. Notwithstanding any other provision of this Agreement, in the event of any change in any applicable law, statute or rule which narrows the right of the Company to indemnify Indemnitee, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. 4.2 NONEXCLUSIVITY. The indemnification rights provided to Indemnitee by this Agreement shall be in addition to, and not in lieu of, any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested directors, applicable law or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee with respect to (i) any action taken or not taken while serving in an indemnified capacity and (ii) any Proceeding arising out of or relating to the period prior to the date upon which Indemnitee ceased to serve in an indemnified capacity, even though he may have ceased to serve in such capacity at the time of any covered Proceeding. 5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, Page 4 judgments, fines or penalties actually and reasonably incurred by him in the investigation, defense, appeal or settlement of any Proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses, judgments, fines or penalties to which Indemnitee is entitled. 6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge that in certain instances, federal or state law or regulation may prohibit the Company from indemnifying Indemnitee under this Agreement or otherwise. The Company agrees to assert vigorously, in any such action pertaining to the Company's right to indemnify Indemnitee, the position that the Company has the full and unfettered right to so indemnify Indemnitee, and further agrees that Indemnitee may, at any time and in Indemnitee's sole discretion, assume control of the Company's defense of such right (including without limitation selection of counsel and determination of strategy), with such defense nonetheless being conducted at the Company's expense. 7. LIABILITY INSURANCE. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the directors, officers, employees and agents of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all such policies of liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's employees, if Indemnitee is not a director or officer but is an employee; or of the Company's agents, if Indemnitee is not a director, officer or employee but is an agent. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company. 8. SEVERABILITY. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to law, regulation or court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this SECTION 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this entire Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 9. EXCEPTIONS. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: Page 5 9.1 CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance Expenses to Indemnitee with respect to Proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to Proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or otherwise but such indemnification or advancement of Expenses may be provided by the Company in specific cases if the Board has approved the initiation or bringing of such suit; 9.2 FRIVOLOUS PROCEEDINGS. To indemnify Indemnitee for any Expenses incurred by Indemnitee with respect to any Proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such Proceeding were frivolous; 9.3 INSURED CLAIMS. To make any payment in connection with any claim made against Indemnitee to the extent Indemnitee has otherwise received payment (under any insurance policy, the Certificate of Incorporation or Bylaws of the Company, contract or otherwise) of the amounts otherwise indemnifiable hereunder. If the Company makes any indemnification payment to Indemnitee in connection with any particular Expense indemnified hereunder and Indemnitee has already received or thereafter receives, and is entitled to retain, duplicate payments in reimbursement of the same particular expense, then Indemnitee shall reimburse the Company in an amount equal to the lesser of (i) the amount of such duplicate payment and (ii) the full amount of such indemnification payment made by the Company; 9.4 UNLAWFUL CLAIMS. To indemnify Indemnitee in any manner which a court of competent jurisdiction has finally determined to be unlawful; 9.5 FAILURE TO SETTLE PROCEEDING. In the event that Indemnitee Fails to Pursue a Recommended Settlement of a Qualifying Claim, to indemnify Indemnitee (i) for amounts paid or payable in settlement of such Qualifying Claim in excess of the amount of such Recommended Settlement thereof, or (ii) for any cost and/or expenses directly related to such Qualifying Claim incurred by Indemnitee following the date upon which Indemnitee Fails To Pursue such Recommended Settlement. For purposes of this clause, "Qualifying Claim" shall mean any claim the defense of which may be assumed by the Company under SECTION 3.5 above (i.e., any claim that (A) is not described in the first clause (i) of said SECTION 3.5 and (B) with respect to which the Company has acknowledged its unconditional duty to indemnify as described in first clause (ii) of said SECTION 3.5), "Recommended Settlement" shall mean a reasonable written settlement proposal, in full and final executable form in all material respects, and "Fails To Pursue" shall mean either (i) Indemnitee's failure to communicate a Recommended Settlement to the principal adverse party in the subject matter within 30 days after Indemnitee's receipt thereof from the Company, or (ii) Indemnitee's failure to agree to any Recommended Settlement that has been accepted by all adverse parties in the subject matter within 30 days after receipt thereof, provided the Company has (A) irrevocably deposited all funds necessary to satisfy all of Indemnitee's obligations under such Recommended Settlement in an account subject to Indemnitee's or a third party's control and (B) irrevocably taken all actions and given all instructions necessary or appropriate to permit such funds to be applied in satisfaction of such obligations of Indemnitee. Page 6 9.6 BREACH OF EMPLOYMENT AGREEMENT. To indemnify Indemnitee for any breach by Indemnitee of any employment agreement between Indemnitee and the Company or any of its subsidiaries. 10. CONSTRUCTION OF CERTAIN PHRASES. 10.1 For purposes of this Agreement, references to the "COMPANY" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees and/or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. 10.2 For purposes of this Agreement, references to "OTHER ENTERPRISES" shall include employee benefit plans; references to "FINES" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "SERVING AT THE REQUEST OF THE COMPANY" shall include any service as a director, officer, employee or agent of the Company or any subsidiary of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries. 11. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns. 13. ATTORNEYS' FEES. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee's material defenses to such action were frivolous. 14. NOTICE. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such Page 7 receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked if addressed as provided for on the signature page of this Agreement, unless sooner received, or as subsequently modified by written notice. 15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of California, or in federal courts located in such State. 16. CHOICE OF LAW. This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of Delaware, without regard to conflicts of law principles of such state. 17. SUBROGATION. In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of contribution or recovery of Indemnitee against other persons, and Indemnitee shall take, at the request of the Company, all reasonable action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights. 18. ENFORCEMENT. 18.1 The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as an officer or director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as an officer or director of the Company. 18.2 This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof. 19. MODIFICATION AND WAIVER. No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 20. HEADINGS. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. Page 8 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. COMPANY: VCA ANTECH, INCORPORATED, a Delaware corporation By: ---------------------------------------- Name: Title: Notice Address: VCA Antech, Incorporated 12401 West Olympic Boulevard Los Angeles, California 90064 Attn: Chief Financial Officer AGREED TO AND ACCEPTED: INDEMNITEE: - ------------------------------- (Signature) - ------------------------------- (Print Name) Notice Address: - ------------------------------- - ------------------------------- - ------------------------------- (Print Address) Page 9 EX-10 15 ex-10_14.txt EXHIBIT 10.14 - MERGER AGREEMENT EXHIBIT 10.14 AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER By and Among VICAR RECAP, INC., a Delaware corporation, VETERINARY CENTERS OF AMERICA, INC., a Delaware corporation and VICAR OPERATING, INC., a Delaware corporation Dated as of August 11, 2000 AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER This AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is entered into as of August 11, 2000, by and among Vicar Recap, Inc., a Delaware corporation ("RECAP") wholly owned by Green Equity Investors III, L.P. ("PARENT"), Veterinary Centers of America, Inc., a Delaware corporation (together with its Subsidiaries from time to time (except as the context may otherwise require), the "COMPANY"), and Vicar Operating, Inc., a Delaware corporation and wholly owned subsidiary of the Company ("OPERATING COMPANY"), with respect to the facts and circumstances set forth below. Capitalized terms used herein without definition have the meanings set forth elsewhere in this Agreement. This Agreement amends and restates the Agreement and Plan of Merger entered into by the parties as of March 30, 2000 (the "ORIGINAL AGREEMENT DATE"). A. The Company Board (acting upon a recommendation of the Special Committee) and the Board of Directors of Operating Company have each determined that it is advisable and in the best interests of their respective stockholders to effect a transfer of all of the assets, properties, business operations and liabilities of the Company to Operating Company prior to the Merger (the "ASSET DROP DOWN"), to create a holding company and operating company structure, in order to facilitate the consummation of the Merger in accordance with this Agreement. Upon consummation of the Asset Drop Down, Operating Company will remain and continue to be a wholly owned subsidiary of the Company. B. The Company Board (acting upon a recommendation of the Special Committee) and the Board of Directors of Recap have each determined that it is advisable and in the best interests of their respective stockholders to effect a merger, following the consummation of the Asset Drop Down, of Recap with and into the Company, with the Company as the surviving corporation, pursuant to the Certificate of Merger and upon the terms and subject to the conditions set forth herein. C. Pursuant to the Merger, all shares of capital stock of the Company (other than Dissenting Shares, Rollover Shares, shares held by Parent or Recap, and shares held in the Company's treasury) shall be cancelled and converted automatically into the right to receive an amount in cash per share, without interest, as set forth in Section 2.2.1 of this Agreement. D. Certain members of management and employees of the Company (the "ROLLOVER HOLDERS"): (i) hold shares of Common Stock of the Company (the "ROLLOVER SHARES") that shall remain outstanding following the Merger as shares of common stock of the Surviving Corporation; (ii) may hold Contributed Options that shall be tendered in the Merger for shares of common stock of the Surviving Corporation with a value equal to the excess of the aggregate cash amount that would be paid in the Merger with respect to the shares of Common Stock subject to the Contributed Options, if the Contributed Options were exercised, over the aggregate exercise price with respect to the Contributed Options (as reduced by any required withholdings of taxes); (iii) may make Rollover Payments for shares of common stock of the Surviving Corporation; (iv) may receive Loans from the Surviving Corporation to enable them to purchase shares of common stock of the Surviving Corporation; and (v) may provide Other Consideration in exchange for shares of common stock of the Surviving Corporation (the "RECAPITALIZATION"). E. As a result of the Merger and the transactions contemplated by this Agreement, all of the outstanding equity interests of the Surviving Corporation will be owned by Parent, certain co-investors, the Rollover Holders, the holders of any options to purchase common stock of the Surviving Corporation, and certain mezzanine lenders that are providing financing in connection with the Merger. F. In order to induce Recap to enter into this Agreement, Recap and certain Rollover Holders have previously entered into Voting Agreements in the form attached hereto as EXHIBIT A, pursuant to which, among other things, the Rollover Holders will agree to vote their shares of Common Stock of the Company in favor of the Merger. NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties and covenants contained herein and intending to be legally bound, the parties hereto agree as follows: ARTICLE 1. DEFINITIONS 1.1. CERTAIN TERMS. For all purposes of this Agreement, except as otherwise expressly provided: 1.1.1. the terms defined in this Article 1 have the meanings assigned to them in this Article 1 and include the plural as well as the singular; 1.1.2. all accounting terms not otherwise defined herein have the meanings assigned under GAAP; 1.1.3. all references in this Agreement to "Articles," "Sections," "Exhibits," "Annexes" and "Schedules" shall be deemed to be references to Articles and Sections of, and Exhibits, Annexes and Schedules to, this Agreement, unless the context shall otherwise require; 1.1.4. pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms; 1.1.5. the words "include," "includes" and "including" shall be deemed in each case to be followed by the words "without limitation"; 1.1.6. the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision; 1.1.7. the term "party" or "parties" when used herein refer to Recap, the Company and Operating Company; and Page 2 1.1.8. unless otherwise expressly provided herein, any agreement, plan, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. 1.2. DEFINITIONS. As used in this Agreement and the Exhibits, Annexes and Schedules delivered pursuant to this Agreement, the following terms have the meanings set forth below: 1.2.1. "ACQUISITION PROPOSAL" has the meaning set forth in Section 7.5.2 hereof. 1.2.2. "ACTION" means any action, complaint, petition, investigation, suit, litigation or other proceeding, whether civil or criminal, in law or in equity, before any court, tribunal, arbitrator or Governmental Entity. 1.2.3. "ADDITIONAL ROLLOVER SHARES NUMBER" has the meaning set forth in Section 8.3.9 hereof. 1.2.4. "AFFILIATE" means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person. The term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. 1.2.5. "AGGREGATE SPREAD AMOUNT" has the meaning set forth in Section 8.3.9. 1.2.6. "AGREEMENT" means this Agreement, as amended or supplemented, together with all Annexes and Schedules attached or incorporated by reference, in each case as amended or supplemented. 1.2.7. "ASSET DROP DOWN" has the meaning set forth in the recitals hereof. 1.2.8. "BUSINESS DAY" means any day that is not a Saturday, Sunday or legal holiday in the State of California. 1.2.9. "CERTIFICATE OF MERGER" has the meaning set forth in Section 2.1.2 hereof. 1.2.10. "CLOSING" has the meaning set forth in Section 3.1 hereof. 1.2.11. "CLOSING DATE" means the date and time of the Closing. 1.2.12. "CODE" means the Internal Revenue Code of 1986, as amended. Page 3 1.2.13. "COMMON SHARE EXCHANGE RATIO" has the meaning set forth in Section 2.2.4 hereof. 1.2.14. "COMMON STOCK" means the Company's common stock, $.001 par value. 1.2.15. "COMPANY" has the meaning set forth in the preamble hereof. 1.2.16. "COMPANY BOARD" means the Board of Directors of the Company. 1.2.17. "COMPANY COMPUTER SYSTEM" has the meaning set forth in Section 5.15 hereof. 1.2.18. "COMPANY PLANS" has the meaning set forth in Section 5.13 hereof. 1.2.19. "COMPANY PROXY STATEMENT" has the meaning set forth in Section 7.9 hereof. 1.2.20. "CONTRIBUTED OPTIONS" has the meaning set forth in Section 8.3.9. 1.2.21. "CONVERTIBLE DEBENTURES" means the Company's 5.25% convertible subordinated debentures issued April 17, 1996. 1.2.22. "DGCL" means the Delaware General Corporation Law. 1.2.23. "DISCLOSURE SCHEDULE" has the meaning set forth in Article 5 hereof. 1.2.24. "DISSENTING SHARES" has the meaning set forth in Section 2.5 hereof. 1.2.25. "EFFECTIVE TIME" has the meaning set forth in Section 2.1.2 hereof. 1.2.26. "ENCUMBRANCE" means any charge, encumbrance, security interest, lien, option, equity, adverse claim or restriction, except for any restrictions on transfer generally arising under any applicable Law. 1.2.27. "ENVIRONMENTAL LAW" has the meaning set forth in Section 5.16.2 hereof. 1.2.28. "ERISA" means the Employee Retirement Income Security Act of 1934, as amended. 1.2.29. "ERISA AFFILIATE" has the meaning set forth in Section 5.13 hereof. 1.2.30. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. 1.2.31. "EXECUTIVE OFFICER" means each of Robert Antin, Arthur Antin, Tomas Fuller and Neil Tauber. Page 4 1.2.32. "EXPENSES" has the meaning set forth in Section 9.3.2 hereof. 1.2.33. "FINANCIAL STATEMENTS" means the Company's audited consolidated balance sheet as of December 31, 1999, and the related consolidated income statements, statement of stockholders' equity and comprehensive income and statement of cash flows for the year ended December 31, 1999, in each case as contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 filed with the SEC on March 24, 2000. 1.2.34. "FINANCING" has the meaning set forth in Section 6.6 hereof. 1.2.35. "FINANCING ENTITIES" has the meaning set forth in Section 6.6 hereof. 1.2.36. "FINANCING LETTERS" has the meaning set forth in Section 6.6 hereof. 1.2.37. "GAAP" means generally accepted accounting principles in the United States, as in effect from time to time, consistently applied. 1.2.38. "GOVERNMENTAL ENTITY" means any government or any agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign. 1.2.39. "HAZARDOUS SUBSTANCE" has the meaning set forth in Section 5.16.2 hereof. 1.2.40. "HSR ACT" has the meaning set forth in Section 7.6.1 hereof. 1.2.41. "INDEBTEDNESS" means all obligations for borrowed money, however evidenced, including principal and interest. 1.2.42. "INDEMNIFIED PARTY" has the meaning set forth in Section 7.13 hereof. 1.2.43. "INSURANCE POLICIES" has the meaning set forth in Section 5.18 hereof. 1.2.44. "KNOWLEDGE" means, with respect to any Person other than the Company, the actual knowledge of such Person and its Representatives, and with respect to the Company, the actual knowledge of the Company's Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and Senior Vice President of Development. 1.2.45. "LAW" means any applicable statute, rule, regulation, administrative requirement, code or ordinance of any Governmental Entity. 1.2.46. "LEASED REAL ESTATE" has the meaning set forth in Section 5.22.2 hereof. Page 5 1.2.47. "LIABILITIES" means all liabilities, obligations or Indebtedness of any kind, whether matured or unmatured, liquidated or unliquidated, fixed or contingent. 1.2.48. "LOANS" has the meaning set forth in Section 8.3.9 hereof. 1.2.49. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the ability of the subject Person to perform its obligations under, and consummate the transactions contemplated by, this Agreement on a timely basis or (ii) the financial condition, business, results of operations, or prospects of such Person and its Subsidiaries, taken as a whole; PROVIDED, HOWEVER, the parties hereto acknowledge and agree that the adverse effect (if any) on (a) the Company's ability to perform its obligations under, and consummate the transactions contemplated by, this Agreement on a timely basis or (b) the Company's financial condition, business, results of operations, or prospects directly or indirectly resulting from, or which is reasonably likely to result from, (A) this Agreement or the transactions contemplated hereby or the public announcement of this Agreement and the Merger, (B) the economy or securities markets in general, or (C) the Company's industry in general, and not specifically related to the Company, shall not constitute a Material Adverse Effect with respect to the Company hereunder. 1.2.50. "MERGER" has the meaning set forth in Section 2.1.1 hereof. 1.2.51. "MERGER CONSIDERATION" means the cash paid to the holders of the Other Shares pursuant to Article 2 hereof. 1.2.52. "NASD" has the meaning set forth in Section 5.5.1 hereof. 1.2.53. "NEW FINANCING LETTERS" has the meaning set forth in Section 6.6 hereof. 1.2.54. "NEW SERIES A PREFERRED STOCK" has the meaning set forth in Section 7.11 hereof. 1.2.55. "NEW SERIES B PREFERRED STOCK" has the meaning set forth in Section 7.11 hereof. 1.2.56. "NLRB" has the meaning set forth in Section 5.14.3 hereof. 1.2.57. "NOTICE OF SUPERIOR PROPOSAL" has the meaning set forth in Section 7.5.2 hereof. 1.2.58. "OPERATING COMPANY" has the meaning set forth in the preamble hereof. 1.2.59. "OPTIONS" means the options to purchase shares of Common Stock of the Company. 1.2.60. "ORDER" means any decree, injunction, judgment, order, ruling, arbitration award, assessment or writ issued by any Governmental Entity. Page 6 1.2.61. "OTHER CONSIDERATION" has the meaning set forth in Section 8.3.9 hereof. 1.2.62. "OTHER CONSIDERATION AMOUNT" has the meaning set forth in Section 8.3.9 hereof. 1.2.63. "OTHER CONTRIBUTING STOCKHOLDERS" has the meaning set forth in Section 8.3.9 hereof. 1.2.64. "OTHER SHARES" has the meaning set forth in Section 2.2.1 hereof. 1.2.65. "OWNED REAL ESTATE" has the meaning set forth in Section 5.22.1 hereof. 1.2.66. "PARENT" has the meaning set forth in the preamble. 1.2.67. "PAYING AGENT" has the meaning set forth in Section 2.3.1 hereof. 1.2.68. "PER SHARE AMOUNT" has the meaning set forth in Section 2.2.1 hereof. 1.2.69. "PERMIT" means any license, permit, franchise or authorization. 1.2.70. "PERMITTED ACQUISITIONS" has the meaning set forth in Section 7.1.3 hereof. 1.2.71. "PERMITTED ENCUMBRANCES" means (i) Encumbrances disclosed on the Disclosure Schedule, (ii) liens for Taxes, assessments, governmental charges or levies or mechanics' and other statutory liens which are not material in amount relative to the property affected, or which are not yet delinquent or can be paid without penalty or are being contested in good faith and by appropriate proceedings in respect thereof, and (iii) imperfections of title which are not substantial in amount relative to the property affected and which do not materially interfere with the present use of the property subject thereto or affected thereby. 1.2.72. "PERSON" means an association, a corporation, an individual, a partnership, a limited liability company or limited liability partnership, a trust or any other entity or organization, including a Governmental Entity. 1.2.73. "PREFERRED STOCK" means the Company's preferred stock, $.001 par value. 1.2.74. "RECAP" has the meaning set forth in the preamble hereof. 1.2.75. "RECAP COMMON STOCK" means the common stock, $.01 par value, of Recap. 1.2.76. "RECAPITALIZATION" has the meaning set forth in the recitals hereof. Page 7 1.2.77. "REPRESENTATIVES" means Persons acting on behalf of another Person, including such Person's officers, directors, employees, representatives, agents, independent accountants, investment bankers and counsel. 1.2.78. "RIGHTS AGREEMENT" has the meaning set forth in Section 5.28 hereof. 1.2.79. "ROBERT ANTIN ROLLOVER VALUE" has the meaning set forth in Section 8.3.9 hereof. 1.2.80. "ROLLOVER HOLDERS" has the meaning set forth in the recitals hereof. 1.2.81. "ROLLOVER OPTIONS" means the Options issued under the Stock Option Plans that, pursuant to written agreements entered into between Recap and the holders of such Options, will continue in the Surviving Corporation. 1.2.82. "ROLLOVER PAYMENTS" has the meaning set forth in Section 8.3.9 hereof. 1.2.83. "ROLLOVER SCHEDULE" has the meaning set forth in Section 2.2.3 hereof. 1.2.84. "ROLLOVER SHARES" has the meaning set forth in the recitals hereof. 1.2.85. "SEC" means the United States Securities and Exchange Commission or any successor entity. 1.2.86. "SEC REPORTS" has the meaning set forth in Section 5.6.1 hereof. 1.2.87. "SECURITIES ACT" means the Securities Act of 1933, as amended. 1.2.88. "SERVICE" means the Internal Revenue Service or any successor entity. 1.2.89. "SHARE CERTIFICATES" has the meaning set forth in Section 2.3.1 hereof. 1.2.90. "SPECIAL COMMITTEE" means the special committee of the Company Board consisting entirely of non-management independent directors established to make recommendations to the Company Board with respect to, among other matters, the advisability of the consummation of the transactions contemplated by this Agreement. 1.2.91. "SPECIAL MEETING" has the meaning set forth in Section 7.10 hereof. 1.2.92. "STOCKHOLDER AGREEMENT" means the stockholders agreement to be entered into by the Company, Parent and the Rollover Holders on or prior to the Closing Date. Page 8 1.2.93. "STOCK OPTION PLANS" means, collectively, the Veterinary Centers of America, Inc. 1996 Employee Stock Purchase Plan, the 1996 Stock Incentive Plan, and the 1993 Stock Incentive Plan. 1.2.94. "SUBSIDIARY" of a company means any Person in which such company has a direct or indirect equity or ownership interest by vote or value of in excess of 50%. 1.2.95. "SURVIVING CORPORATION" has the meaning set forth in Section 2.1.1 hereof. 1.2.96. "SUPERIOR PROPOSAL" has the meaning set forth in Section 7.5.2 hereof. 1.2.97. "TAKEOVER STATUTE" has the meaning set forth in Section 7.15 hereof. 1.2.98. "TAX" or "TAXES", as the context may require, include: (i) any income, alternative or add-on minimum tax, gross income, gross receipts, franchise, profits, sales, use, ad valorem, business license, withholding, payroll, employment, excise, stamp, transfer, recording, occupation, premium, property, value added, custom duty, severance, windfall profit or license tax, governmental fee, including estimated taxes relating to any of the foregoing, or other similar tax or other like assessment or charge of similar kind whatsoever together with any interest and any penalty, addition to tax or additional amount imposed by any Governmental Entity responsible for the imposition of any such Tax; or (ii) any liability of a Person for the payment of any taxes, interest, penalty, addition to tax or like additional amount resulting from the application of Treas. Reg. Section 1.1502-6 or comparable provisions of any Governmental Entity in respect of a consolidated or combined return. 1.2.99. "TAX RETURN" means any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Entity in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Law relating to any Tax. 1.2.100. "TERMINATION FEE" shall have the meaning set forth in Section 9.3.1 hereof. 1.2.101. "THIRD PARTY" has the meaning set forth in Section 7.5.2 hereof. 1.2.102. "UPDATED FINANCIAL STATEMENTS" has the meaning set forth in Section 7.7 hereof. 1.2.103. "VOTING AGREEMENT" means the Voting Agreement in the form attached hereto as EXHIBIT A. Page 9 ARTICLE 2. THE MERGER 2.1. THE MERGER. 2.1.1. Upon the terms and subject to the conditions hereof, and in accordance with the DGCL, Recap shall be merged with and into the Company at the Effective Time (the "MERGER"). Upon consummation of the Merger, the separate existence of Recap shall cease and the Company shall be the surviving corporation (the "SURVIVING CORPORATION"). 2.1.2. As soon as practicable after satisfaction of (or, to the extent permitted hereunder, waiver of) all conditions to the Merger, the Company and Recap will file a certificate of merger (the "CERTIFICATE OF MERGER") with the Secretary of State of the State of Delaware in accordance with the DGCL and make all other filings or recordings required by Law in connection with the Merger. The Merger shall become effective at such time as the Certificate of Merger is filed with the Secretary of State of the State of Delaware or at such later time as is specified in the Certificate of Merger (the "EFFECTIVE TIME"). 2.1.3. The Merger shall have the effects set forth in Sections 251, 259 and 261 of DGCL. 2.2. MERGER CONSIDERATION AND CONVERSION (OR RETENTION) OF SHARES. At the Effective Time, pursuant to this Agreement and by virtue of the Merger and without any action on the part of Recap, the Company, or the holders of any of the following securities: 2.2.1. Each share of Common Stock issued and outstanding immediately prior to the Effective Time (including shares of Common Stock issued upon exercise of Options and other convertible securities of the Company, but excluding any Dissenting Shares, Rollover Shares and shares to be cancelled pursuant to Section 2.2.2) shall be cancelled and shall be converted automatically into the right to receive an amount equal to $15.00 in cash (the "PER SHARE AMOUNT"), without interest, payable to the holder thereof upon surrender of the certificate formerly representing such share of Common Stock in the manner provided in Section 2.3 (the shares of Common Stock being converted into the right to receive the Per Share Amount are hereinafter referred to as the "OTHER SHARES"). 2.2.2. Each share of Common Stock held in the treasury of the Company or held by Recap or Parent, if any, immediately prior to the Effective Time, shall be cancelled without any conversion thereof and no payment or distribution shall be made with respect thereto. 2.2.3. Each Rollover Share that is issued and outstanding shall not be converted or cancelled as provided in Section 2.2.1 or 2.2.2 above, but shall remain outstanding as an issued, fully paid and nonassessable share of common stock of the Surviving Corporation. The Rollover Shares shall be identified in a schedule prepared by the Company (the "ROLLOVER SCHEDULE"), which shall be delivered by the Company to Recap prior to the Closing. Page 10 2.2.4. Each share of Recap Common Stock that is issued and outstanding immediately prior to the Effective Time shall be converted into one newly issued, fully paid and nonassessable share of common stock of the Surviving Corporation (the "COMMON SHARE EXCHANGE RATIO"). 2.2.5. If between the Original Agreement Date and the Effective Time the number of outstanding shares of capital stock of the Company shall have been changed into a different number of shares or a different class, by reason of any stock dividend, subdivision, reclassification, recapitalization, split-up, combination, exchange of shares or the like other than pursuant to the Merger, the Per Share Amount and the Common Share Exchange Ratio shall be correspondingly adjusted. 2.3. PAYMENT OF CASH FOR OTHER SHARES AND OPTIONS. 2.3.1. At the Effective Time, the Surviving Corporation shall irrevocably deposit or cause to be deposited with a paying agent appointed by Recap with the Company's prior approval (the "PAYING Agent"), as agent for the holders of Other Shares, cash in the aggregate amount required to pay the Merger Consideration in respect of the Other Shares outstanding immediately prior to the Effective Time. Pending distribution pursuant to Section 2.3.2 hereof of the cash deposited with the Paying Agent, such cash shall be held in trust for the benefit of the holders of the Other Shares and such cash shall not be used for any other purposes, and shall be held in obligations of, or guaranteed by, the United States of America, or any agency thereof, and backed by the full faith and credit of the United States of America, in commercial paper obligations rated A-1 or P-1 or better by Moody's Investor Services, Inc. or Standard & Poors Corporation, respectively, or in deposit accounts, certificates of deposit or bankers' acceptances of, repurchase or reverse repurchase agreements with, or Eurodollar time deposits purchased from commercial banks with capital, surplus and undivided profits aggregating in excess of $1,000,000,000 (based on the most recent financial statements of such bank which are then publicly available at the SEC or otherwise). Promptly after the Effective Time, the Surviving Corporation shall cause to be mailed to each Person who was, at the Effective Time, a holder of record of Other Shares, a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the certificates evidencing the Other Shares (the "SHARE Certificates") shall pass, only upon proper delivery of the Share Certificate to the Paying Agent) and instructions for use in effecting the surrender of the Share Certificate pursuant to such letter of transmittal. Upon surrender to the Paying Agent of a Share Certificate, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, the holder of such Share Certificate shall be entitled to receive in exchange therefor the Per Share Amount for the Other Shares formerly evidenced by such Share Certificate, and such Share Certificate shall thereupon be cancelled. No interest shall accrue or be paid on the Per Share Amount payable upon the surrender of any Share Certificate for the benefit of the holder of such Share Certificate. 2.3.2. After surrender to the Paying Agent of any Share Certificate or other instrument which prior to the Effective Time shall have represented any Other Shares, the Paying Agent shall promptly distribute to the Person in whose name such Share Certificate or other instrument shall have been registered, a check in the amount into which Page 11 such Other Shares shall have been converted at the Effective Time pursuant to Section 2.2 hereof. Until so surrendered and cancelled, each such Share Certificate or other instrument shall, after the Effective Time, be deemed to represent only the right to receive the Per Share Amount, and until such surrender and cancellation, no cash shall be paid to the holder of such outstanding Share Certificate or other instrument in respect thereof. From and after the Effective Time, the holders of Other Shares outstanding immediately prior to the Effective Time shall cease, except as required by law, to have any rights with respect to such Other Shares, other than the right to receive the Per Share Amount as provided in this Agreement. 2.3.3. If payment is to be made to a Person other than the registered holder of the Other Shares represented by the Share Certificate or other instrument so surrendered in exchange therefor, it shall be a condition to such payment that the Share Certificate or other instrument so surrendered shall be properly endorsed or otherwise be in proper form for transfer and that the Person requesting such payment shall pay to the Paying Agent any transfer or other taxes required as a result of such payment to a Person other than the registered holder of such Other Shares or establish to the satisfaction of the Paying Agent that such tax has been paid or is not payable. 2.3.4. After the Effective Time, there shall be no further transfers on the stock transfer books of the Surviving Corporation of the Other Shares that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Share Certificates representing Other Shares are presented to the Surviving Corporation, they shall be cancelled and exchanged for the cash amount provided for, and in accordance with the procedures set forth, in this Article 2. 2.3.5. If any cash deposited with the Paying Agent for purposes of payment in exchange for Other Shares remains unclaimed six months after the Effective Time, such cash shall be returned to the Surviving Corporation, upon demand, and any such holder who has not converted his Other Shares into the Per Share Amount or otherwise received the Per Share Amount pursuant to this Agreement prior to that time shall thereafter look only to the Surviving Corporation for payment of the Per Share Amount. Notwithstanding the foregoing, the Surviving Corporation shall not be liable to any holder of Other Shares for any amount paid to a public official pursuant to applicable unclaimed property laws. Any amounts remaining unclaimed by holders of Other Shares seven (7) years after the Effective Time (or such earlier date immediately prior to such time as such amounts would otherwise escheat to or become property of any Governmental Entity) shall, to the extent permitted by applicable Law, become the property of the Surviving Corporation, free and clear of any claims or interest of any Person previously entitled thereto. 2.3.6. Any portion of the Merger Consideration made available to the Paying Agent pursuant to Section 2.5 to pay for shares of Common Stock for which dissenters' rights have been perfected as provided in Section 2.5 hereof shall be returned to the Surviving Corporation upon demand. 2.3.7. No dividends or other distributions with respect to capital stock of the Surviving Corporation with a record date after the Effective Time shall be paid to the holder of any unsurrendered certificate for Other Shares. Page 12 2.3.8. In the event that any Share Certificate or other instrument representing Other Shares shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such certificate or other instrument to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such holder of a bond in such reasonable amount as the Surviving Corporation may direct as indemnity against any claim that may be made against it with respect to such Share Certificate or other instrument, the Paying Agent will issue in exchange for and in lieu of such lost, stolen or destroyed certificate or other instrument representing the Other Shares, the Per Share Amount, and unpaid dividends and distributions on Other Shares deliverable in respect thereof, pursuant to this Agreement and the Merger. 2.4. EXCHANGE OF STOCK CERTIFICATES. Immediately after the Effective Time, the Surviving Corporation shall deliver to the record holders of the certificates that immediately prior to the Effective Time represented all of the outstanding shares of Recap Common Stock that were converted into the right to receive shares of common stock of the Surviving Corporation in accordance with Section 2.2.4, in exchange for such certificates, duly endorsed in blank, share certificates, registered in the names of such record holders, representing the number of shares of common stock of the Surviving Corporation to which such record holders are so entitled by virtue of Section 2.2.4. Such certificates will bear legends restricting the transferability of such shares to the extent contemplated by the Stockholder Agreement, which restrictions will include restrictions designed to assure the Surviving Corporation that these shares will not be offered or sold in contravention of any federal or state securities laws. 2.5. DISSENTING SHARES. Notwithstanding any other provisions of this Agreement, shares of Common Stock which are issued and outstanding immediately prior to the Effective Time and which are held by a holder who has not voted such shares of capital stock of the Company in favor of the Merger and who has delivered a written demand for relief as a dissenting stockholder in the manner provided by DGCL and who, as of the Effective Time, shall not have effectively withdrawn or lost such right to relief as a dissenting stockholder ("DISSENTING SHARES") shall not be converted into a right to receive the Per Share Amount. The holders thereof shall be entitled only to such rights as are granted by Section 262 of DGCL. Each holder of Dissenting Shares who becomes entitled to payment for such Dissenting Shares pursuant to Section 262 of DGCL shall receive payment therefor from the Surviving Corporation in accordance with DGCL; PROVIDED, HOWEVER, that if any such holder of Dissenting Shares (i) shall have failed to establish his entitlement to relief as a dissenting stockholder as provided in Section 262 of DGCL, (ii) shall have effectively withdrawn his demand for relief as a dissenting stockholder with respect to such Dissenting Shares or lost his right to relief as a dissenting stockholder and payment for his Dissenting Shares under Section 262 of DGCL or (iii) shall have failed to file a complaint with the appropriate court seeking relief as to determination of the value of all Dissenting Shares within the time provided in Section 262 of DGCL, such holder shall forfeit the right to relief as a dissenting stockholder with respect to such Dissenting Shares and each such Dissenting Share shall be converted into the right to receive the Per Share Amount from the Surviving Corporation as provided in Section 2.2. The Company shall give Recap prompt notice of any demands received by the Company prior to the Effective Time for relief as a dissenting stockholder, and Recap shall have the right to participate in all negotiations and proceedings with respect to such demands. The Company shall not, Page 13 except with the prior written consent of Recap, make any payment with respect to, or settle or offer to settle, any such demands. 2.6. STOCK OPTIONS. 2.6.1. Except as may be otherwise agreed to in writing between Recap and the holder of any Rollover Options, each Option that has an exercise price of equal to or greater than the Per Share Amount shall be cancelled at the Effective Time, without any payment or other consideration therefor. 2.6.2. At the Effective Time, all other Options (other than any Contributed Options or Rollover Options), whether or not vested, shall be cancelled and, in lieu thereof, as soon as reasonably practicable after the Effective Time, each holder of such Options shall receive a cash payment from the Surviving Corporation equal to the excess of the aggregate cash amount that would be paid in the Merger with respect to the shares of Common Stock subject to such Options, if the Options were exercised, over the aggregate exercise price with respect to such Options, as reduced by any required withholding of taxes. The Rollover Options at the Effective Time shall survive the Closing and the Surviving Corporation shall assume all the rights, liabilities and obligations of such Rollover Options in accordance with the respective Stock Option Plan or any successor or replacement stock option plan of the Surviving Corporation. 2.6.3. Each holder of any Contributed Options at the Effective Time shall receive shares of common stock of the Surviving Corporation that have an aggregate value equal to the excess of the aggregate cash amount that would be paid in the Merger with respect to the shares of Common Stock subject to such holder's Contributed Options, if such holder's Contributed Options were exercised, over the aggregate exercise price with respect to such holder's Contributed Options (as reduced by any required withholdings of taxes). Notwithstanding the foregoing, no fractional shares of common stock of the Surviving Corporation shall be issued in the Merger; instead, each holder of Contributed Options who otherwise would be entitled to a fractional share of common stock of the Surviving Corporation shall receive an amount in cash (without interest) determined by multiplying such fraction by the Per Share Amount. 2.6.4. Prior to the Effective Time, the Company shall (i) take all reasonable steps necessary to make any amendments to the terms of such Stock Option Plans, individual Option agreement or Options that are necessary to give effect to the transactions contemplated by this Agreement, and (ii) use all reasonable and necessary efforts to obtain at the earliest practicable date all written consents (if necessary) from holders of Options to effect the cancellation of such holders' Options to take effect at the Effective Time. 2.6.5. At or prior to the Effective Time, the Company shall take all reasonable and necessary action to fully advise the holders of Options of their respective rights under this Agreement, the Options and the respective Stock Option Plan, to facilitate the timely exercise of such rights and obligations to effectuate the provisions of this Section 2.6. From and after the Effective Time, other than as expressly set forth in this Section 2.6 or in any written agreement between Recap and a holder of Rollover Options, no holder of Page 14 Options shall have any rights in respect of such Options, other than to receive shares of common stock of the Surviving Corporation in the manner described in Section 2.6.3 and/or to receive a cash payment in the manner described in this Section 2.6. The surrender of any Options, the receipt of cash in cancellation of any Options, or the receipt of shares of common stock of the Surviving Corporation in exchange for any Options (and a cash payment for any fractional share) by the holder thereof shall be deemed a release of any and all rights the holder of such Options had or may have had in respect of such Options. ARTICLE 3. CLOSING 3.1. CLOSING. The closing of the Merger (the "CLOSING") shall take place (i) at the offices of Troop Steuber Pasich Reddick & Tobey LLP, 2029 Century Park East, Los Angeles, California 90067 at 9:00 A.M. (Los Angeles time) on the Business Day on which the parties hereto designate as the closing date following the fulfillment or waiver of the conditions set forth in Article 8 hereof in accordance with this Agreement or (ii) at such other place and time and/or on such other date as the Company and Recap may agree. ARTICLE 4. CERTIFICATE OF INCORPORATION AND BYLAWS; OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION 4.1. THE CERTIFICATE OF INCORPORATION OF SURVIVING CORPORATION. The certificate of incorporation of the Surviving Corporation shall be amended in the Merger to contain the identical terms of the certificate of incorporation of Recap immediately prior to the Effective Time until duly amended in accordance with the terms thereof and the DGCL, except that Article First thereof shall continue to read, "The name of this Corporation is Veterinary Centers of America, Inc." 4.2. THE BYLAWS OF SURVIVING CORPORATION. The bylaws of Recap in effect at the Effective Time shall be the bylaws of the Surviving Corporation (with the name of the Surviving Corporation changed, as appropriate) until duly amended in accordance with the terms thereof and in accordance with the certificate of incorporation of the Surviving Corporation and the DGCL. 4.3. OFFICERS AND DIRECTORS OF SURVIVING CORPORATION. From and after the Effective Time, the directors of the Surviving Corporation shall be as set forth in the Disclosure Schedule, and the officers of the Company at the Effective Time shall be the officers of the Surviving Corporation, until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Surviving Corporation's certificate of incorporation and bylaws. ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth in the disclosure letter delivered at or prior to the execution of this Agreement by the Company which shall refer to the relevant sections of this Agreement (the "DISCLOSURE SCHEDULE"), the Company represents and warrants to Recap as of the Original Page 15 Agreement Date (or such other specific date as is indicated below with respect to particular representation and warranty) as follows: 5.1. ORGANIZATION, STANDING AND AUTHORITY. Each of the Company and its Subsidiaries is a corporation, limited liability company or partnership duly organized, validly existing and in good standing under the laws of its respective state of incorporation or organization. Each of the Company and its Subsidiaries is duly qualified to do business and is in good standing in the states of the United States and any foreign jurisdictions where its respective ownership or leasing of property or assets or the conduct of its business requires it to be so qualified, except where the failure to be so qualified would not, individually or in the aggregate, have a Material Adverse Effect on the Company. The Company has made available to Recap a complete and correct copy of the certificate of incorporation, bylaws, operating agreements, partnership agreements or other organizational documents, each as amended to date, of each of the Company and its Subsidiaries. Each of the certificates of incorporation, bylaws, operating agreements, partnership agreements or other organizational documents so made available is in full force and effect. The corporate records and minute books or other applicable records of the Company and its Subsidiaries reflect all material action taken and authorizations made at meetings of such companies' partners, members, boards of directors or any committees thereof and at any stockholders' meetings thereof. 5.2. SUBSIDIARIES. 5.2.1. (i) The Company has previously provided a list of the true, accurate and complete legal names, jurisdiction of incorporation or organization and foreign qualification of each of the Company and its Subsidiaries, which list is included as part of the Disclosure Schedule, (ii) no equity securities of any of its Subsidiaries are or may become required to be issued (other than to it or its wholly owned Subsidiaries) by reason of any options, warrants, or otherwise, (iii) there are no contracts, commitments, understandings or arrangements by which any of such Subsidiaries is or may be bound to sell or otherwise transfer any equity securities of any such Subsidiaries (other than to it or its wholly owned Subsidiaries), and (iv) there are no contracts, commitments, understandings, or arrangements relating to the Subsidiary's rights to vote or to dispose of such securities. 5.2.2. The Company does not own beneficially, directly or indirectly, any equity securities or similar interests of any Person, or any interest in a partnership, limited liability company, joint venture or other entity or organization, other than its Subsidiaries. 5.3. COMPANY CAPITAL STOCK. As of March 30, 2000, the authorized capital stock of the Company consists solely of 60,000,000 shares of Common Stock, of which 21,913,336 are issued and outstanding (of which 620,511 are held in the Company treasury) and 2,000,000 shares of Preferred Stock of which 583,333 shares of Series A Preferred Stock are authorized and no shares of Preferred Stock are outstanding. As of the Original Agreement Date, no shares of Common Stock or Preferred Stock were held in treasury by the Company or otherwise beneficially owned by the Company or its Subsidiaries. The outstanding shares of Common Stock have been duly authorized and validly issued, are fully paid and nonassessable, subject to no preemptive rights, and were not issued in violation of any preemptive rights. Each of the outstanding shares of capital Page 16 stock of each of the Company's Subsidiaries have been duly authorized, and validly issued and are fully paid and nonassessable and not subject to any preemptive right and owned, either directly or indirectly, by the Company free and clear of all Encumbrances. Except as set forth on the Disclosure Schedule, other than Options to purchase 3,779,244 shares of Common Stock of the Company, with an average weighted exercise price of $10.43 and the issuance of rights pursuant to the terms and conditions of the Rights Agreement, there are no preemptive rights or outstanding subscriptions, options, warrants, rights, convertible securities or other agreements or commitments of any character relating to the issued or unissued capital stock or other securities of the Company or any of its Subsidiaries. 5.4. CORPORATE POWER. The Company and its Subsidiaries each has the corporate power and authority to carry on its business as it is now being conducted and to own all its properties and assets. Subject to receipt of the requisite approval of the Merger by the holders of its capital stock entitled to vote thereon, this Agreement and the transactions contemplated hereby and thereby have been authorized by all necessary corporate action of the Company and the Company Board and Operating Company on or prior to the Original Agreement Date. This Agreement has been duly executed and delivered by each of the Company and Operating Company and is a valid and legally binding obligation of each of the Company and Operating Company enforceable against each of the Company and Operating Company in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors' rights or by general equity principles). 5.5. CONSENTS AND APPROVALS; NO DEFAULTS. 5.5.1. No consents or approvals of, or filings or registrations with, any Governmental Entity or with any third party are required to be made or obtained by the Company or any of its Subsidiaries in connection with the execution, delivery or performance by the Company or Operating Company of this Agreement or to consummate the Asset Drop Down or the Merger except for (i) filings of applications, registrations, statements, reports or notices (and expiration of any applicable notice periods) with the United States Department of Justice, the Federal Trade Commission, the National Association of Securities Dealers, Inc. ("NASD"), the NASDAQ National Market, the SEC and state securities authorities, (ii) the requisite approval of this Agreement by the holders of the capital stock of the Company or Operating Company entitled to vote thereon, (iii) the filing of the Certificate of Merger with the Delaware Secretary of State pursuant to the DGCL, and (iv) consents, approvals, filings, or registrations which would not, individually or in the aggregate, have a Material Adverse Effect on the Company. 5.5.2. Subject to receipt of the approvals referred to in the preceding paragraph, and the expiration of related waiting periods, the execution, delivery and performance of this Agreement, the consummation of the transactions contemplated hereby, and compliance with the provisions hereof do not and will not (i) violate, or conflict with, or result in any breach of the terms, conditions, or provisions of, the respective charters, bylaws or other organizational documents of the Company and each of its Subsidiaries; (ii) violate, or conflict with, or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or give rise to Page 17 a right of termination, cancellation, modification or acceleration of the performance required by or a loss of a material benefit under, or result in the creation or imposition of (or the obligation to create or impose) any Encumbrance (other than Permitted Encumbrances) upon any of the properties or assets of the Company under, any of the terms, conditions or provisions of any material agreement, indenture, note, bond, mortgage, deed of trust, undertaking, permit, lease, franchise, license or other instrument to which the Company is a party or by which it or any of its properties or assets may be bound or affected; or (iii) to the Knowledge of the Company, violate any Law or Order applicable to the Company; except, in the case of the preceding clauses (i), (ii) or (iii), for any such violation, conflict, breach, default, event, right or Encumbrance which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. 5.6. SEC REPORTS. 5.6.1. The Company has made available to Recap a true and complete copy of each form, report, schedule, registration statement and definitive proxy statement filed by the Company with the SEC since January 1, 1997 (as such documents have since the time of their filing been amended or supplemented, the "SEC REPORTS"), which are all of the documents that the Company was required to file with the SEC since January 1, 1997. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports (including all financial statements included therein and all exhibits and schedules thereto and documents incorporated by reference therein) contained (as of their respective filing dates) any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made, not misleading, except for such statements, if any, as have been modified or superseded by any subsequent filings. The Financial Statements included in such SEC Reports delivered by the Company to Recap comply in all material respects with the rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited Financial Statements, as permitted by Exchange Act Form 10-Q) and fairly present (subject, in the case of the unaudited Financial Statements, to normal, recurring audit adjustments that, individually and in the aggregate, were not material) the financial position of the Company and its Subsidiaries as at the dates thereof and the results of each of their operations and cash flows for the periods then ended. 5.6.2. As of the Original Agreement Date, none of the Subsidiaries of the Company is a reporting company under the Exchange Act, and none is required to file any regular and periodic filings, notices, forms, reports, or statements with the United States Department of Justice, the Federal Trade Commission, the NASD or the SEC. 5.6.3. Except as disclosed in the SEC Reports or the Disclosure Schedule, or as contemplated by this Agreement, since January 1, 2000 to the Original Agreement Date, the Company's business has been conducted in the ordinary course, and there has not been any: Page 18 (a) event, situation or occurrence that individually or in the aggregate has had a Material Adverse Effect on the Company; (b) amendment to the Company's or any of the Company's Subsidiaries' charter, bylaws or other organizational documents; (c) sale, assignment, disposition, transfer, pledge, mortgage or lease of any material portion of the assets primarily used in the Company's business taken as a whole; (d) incurrence of any additional Indebtedness in excess of $1,000,000, other than accounts payable arising in the ordinary course of business, consistent with past practice, and in connection with Permitted Acquisitions; (e) any increase in the compensation or fringe benefits payable or to become payable to any Executive Officer of the Company, other than routine increases made in the ordinary course of business and consistent with past practice or as required by law or under any existing agreements heretofore disclosed to Recap; (f) any amendment, alteration or modification in the terms of any currently outstanding options, warrants or other rights to purchase any capital stock or equity interest in the Company or any securities convertible into or exchangeable for such capital stock or equity interest, including without limitation any reduction in the exercise or conversion price of any such rights or securities, any change to the vesting or acceleration terms of any such rights or securities, or any change to terms relating to the grant of any such rights or securities; (g) declaration or payment of any dividend or other distribution, or the transfer of any assets, by the Company to any stockholders of the Company with respect to the Common Stock, or any redemption, repurchase or other acquisition by the Company of its capital stock, except in the ordinary course of business; (h) change by the Company in any of its significant accounting principles, methods or practices; (i) any material closure, shut down or other elimination of any of the Company's offices, franchises or any other change in the character of its business, properties or assets, except for closures, shut downs, or other eliminations that have not had a Material Adverse Effect on the Company; (j) loan or advance to or other such agreement with any of its stockholders, officers, directors, employees, agents, consultants or other Representatives, except in the ordinary course of business, consistent with past practice; Page 19 (k) damage, destruction or loss with respect to any of the properties or assets of the Company that would reasonably be expected to have a Material Adverse Effect on the Company; or (l) agreement to do, cause or suffer any of the foregoing. 5.7. DISCLOSURE DOCUMENTS. The proxy statement on Schedule 14A in respect of the Special Meeting of the Company's stockholders to vote upon the Asset Drop Down and the Merger to be filed with the SEC in connection with the Merger as the same may be amended or supplemented, will not, at the date it is first mailed to stockholders of the Company or at the time of the Special Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Company Proxy Statement will comply as to form in all material respects with the requirements of the Exchange Act. No representation is made by the Company with respect to statements made in the Company Proxy Statement based on information supplied by Recap for inclusion therein. 5.8. LITIGATION. There are no Actions pending or, to the Knowledge of the Company, claims threatened against the Company, at law or in equity, and there is no investigation or proceeding pending or, to the Knowledge of the Company, threatened before or by any Governmental Entity nor is there any currently effective Order against the Company or to the Knowledge of the Company, any Order expected to be issued, except for any such Actions, claims, investigations, proceedings or Orders that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. The Disclosure Schedule identifies those pending or, to the Knowledge of the Company, threatened proceedings before a Governmental Entity and threatened claims listed therein which (i) may not be covered by third party insurance or (ii) with respect to which the insurance carrier has denied coverage or has advised the Company that it is defending such claim under reservation of rights or (iii) for which the Company is self-insured. Page 20 5.9. COMPLIANCE WITH LAWS. 5.9.1. Except as set forth on the Disclosure Schedule, the Company and each of its Subsidiaries: (i) is in compliance with all Laws and Orders applicable thereto or to the business of the Company and its Subsidiaries or to the employees conducting such businesses, except where the failure to so comply would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect; (ii) has all Permits, Orders and approvals of, and has made all filings, applications and registrations with, all Governmental Entities that are required in order to permit them to own or lease their properties and to conduct their businesses as presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to the Company's Knowledge, no suspension or cancellation of any of them is threatened, other than such failure to obtain or maintain the same would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect on the Company; and (iii) has not received any notification or communication from any Governmental Entity (a) asserting that the Company or any of its Subsidiaries is not in compliance with any of the statutes, regulations or ordinances which such Governmental Entity enforces or (b) threatening to revoke any license, franchise, permit or governmental authorization (nor, to the Company's Knowledge, do any grounds for any of the foregoing exist), except such notifications or communications which would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect on the Company. 5.10. MATERIAL CONTRACTS; DEFAULTS. 5.10.1. The Disclosure Schedule lists all management contracts and administrative services contracts with the hospitals and/or professional corporations and all contracts or commitments that provide for an aggregate payment from the Company in excess of $500,000 in any contract year other than (i) contracts or commitments that can or in reasonable probability will be completed within 90 days of the Closing Date or can be terminated within such 90 day period without payment of a penalty in excess of $100,000, (ii) contracts or commitments for goods and services purchased in the ordinary course of the Company's business in amounts consistent with past practice, (iii) contracts or commitments in connection with capital expenditures that provide for expenditures consistent with the capital expenditure budget previously supplied by the Company to Recap, and (iv) contracts or commitments reflected on the Financial Statements included as part of the SEC Reports or disclosed in the SEC Reports. 5.10.2. The Company is not in breach or violation of any contract, or in default with respect thereto, except for such violations, breaches or defaults that would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect on the Company. None of the contracts of the Company contain any provisions that upon a change in control of the Company would have a Material Adverse Effect on the Company. 5.11. NO BROKERS. Except for financial advisory fees payable to Jefferies & Company, Inc. and Houlihan Lokey Howard & Zukin Capital, no action has been taken by the Company that would give rise to any valid claim against any party hereto for a brokerage commission, finder's fee or other like payment with respect to the transactions contemplated by this Agreement. Page 21 5.12. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on the Disclosure Schedule, there are no Liabilities of any kind that would be required to be reflected on, or reserved against in the consolidated Financial Statements of the Company or in the notes thereto, prepared in accordance with GAAP that are not disclosed, reflected or reserved against in the consolidated Financial Statements of the Company and its Subsidiaries, except for such Liabilities incurred (i) since December 31, 1999, in the ordinary course of business, consistent with past practice, (ii) which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company, (iii) related to the transactions contemplated by this Agreement, and (iv) payments required as a result of the consummation of the Merger under the terms of the existing employment agreements with the Executive Officers of the Company. 5.13. EMPLOYEE BENEFIT PLANS. The Company has previously supplied Recap a list which is attached to the Disclosure Schedule of all plans and other arrangements which provide compensation or benefits to officers, directors or consultants or employee benefits to employees of the Company or its Subsidiaries, including, without limitation, all "employee benefit plans" as defined in Section 3(3) of ERISA, and all bonus, stock option, stock purchase, incentive, deferred compensation, supplemental retirement, severance and other similar fringe or employee benefit plans, and all employment or executive compensation agreements (collectively, the "COMPANY PLANS"). All Company Plans comply with and are and have been operated in material compliance with each applicable provision of ERISA, the Code, other federal statutes, state law (including, without limitation, state insurance law) and the regulations and rules promulgated pursuant thereto or in connection therewith. Neither the Company nor any member of the same controlled group of businesses as the Company within the meaning of Section 4001(a)(14) of ERISA (an "ERISA AFFILIATE") is or ever was a sponsor or obligated to contribute to any plan covered by Title IV of ERISA or Section 412 of the Code, or any "multi-employer plan," within the meaning of Section 3(37) of ERISA. Each Company Plan which is required to comply with the provisions of Sections 4980B and 4980C of the Code, or with the requirements referred to in Section 4980D(a) of the Code, has complied in all material respects, and, except as required by such sections of the Code, no Company Plan which is a "welfare benefit plan," as defined in Section 3(1) of ERISA, provides for post-employment benefits. Notwithstanding any statement or indication in this Agreement to the contrary, there are no Company Plans which the Company or Recap will not be able to terminate (or in which the Company or Recap will not be able to terminate the participation of their Employees) immediately after the Closing in accordance with their terms and ERISA, and without incurring any expenses (including, but not limited to, loads or termination charges imposed with respect to insurance policies or mutual funds used to fund such Company Plans), other than administrative expenses in connection with such termination. Neither the Company, any of its Subsidiaries, nor any ERISA Affiliate has failed to make any material contributions or to pay any material amounts due and owing as required by the terms of any Company Plan. Each of the Company Plans which is intended to be a qualified plan under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service, and has been operated substantially in accordance with its terms and with the provisions of the Code. No amounts payable under the Company Plans will fail to be deductible for federal income tax purposes by virtue of Sections 162(m) or 280G of the Code. Other than routine claims for benefits under the Company Plans, there are no pending, or, to the best Knowledge of the Company, threatened, investigations, proceedings, Page 22 claims, lawsuits, disputes, actions, audits or controversies involving the Company Plans, or the fiduciaries, administrators, or trustees of any of the Company Plans or the Company or any ERISA Affiliate of either as the employer or sponsor under any Company Plan, with any of the Internal Revenue Service, the Department of Labor, the Pension Benefit Guaranty Corporation, any participant in or beneficiary of any Company Plan or any other Person whomsoever. The Company knows of no reasonable basis for any such claim, lawsuit, dispute, action or controversy. The Company has delivered to Recap true and complete copies of: (i) each of the Company Plans and any related funding agreements thereto (including insurance contracts) including all amendments, all of which are legally valid and binding and in full force and effect and there are no defaults thereunder, (ii) the currently effective Summary Plan Description pertaining to each of the Company Plans, (iii) the three most recent annual reports for each of the Company Plans (including all relevant schedules), (iv) the most recent Internal Revenue Service determination letter for each Company Plan which is intended to constitute a qualified plan under Section 401 of the Code and each amendment to each of the foregoing documents, and (v) financial statements for each funded Company Plan. Neither the Company nor any Subsidiary is a party or subject to any agreement, contract or other obligation which would require the making of any payment, other than payments as contemplated by this Agreement, to any employee of the Company or to any other Person as a result of the consummation of the transactions contemplated herein. 5.14. LABOR AND EMPLOYMENT MATTERS. 5.14.1. Neither the Company nor any of its Subsidiaries is a party to or is bound by any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, nor is the Company or any of its Subsidiaries the subject of a proceeding asserting that it or any such Subsidiary has committed an unfair labor practice (within the meaning of the National Labor Relations Act) or seeking to compel the Company or any such Subsidiary to bargain with any labor organization as to wages or conditions of employment, nor is there any strike involving it or any of its Subsidiaries pending or, to the Company's Knowledge, threatened, nor is the Company aware of any activity during the past three years involving its or any of its Subsidiaries' employees seeking to certify a collective bargaining unit or engaging in other organizational activity. 5.14.2. The Disclosure Schedule contains an accurate list of all employment contracts between the Company and each of the Executive Officers. Except in accordance with the contracts, agreements, plans or programs identified in the Disclosure Schedule, no individual will accrue or receive material additional benefits, service or accelerated rights to payment of benefits as a result of the transactions contemplated by this Agreement (either alone or combined with any other event or transaction). 5.14.3. As of the Original Agreement Date, and except as set forth in the Disclosure Schedule, there is no (i) unfair labor practice complaint against the Company pending before the National Labor Relations Board (the "NLRB") or any other federal, state, local or foreign agency; (ii) pending labor strike or lockout affecting the Company; (iii) pending material grievance or unfair dismissal proceeding before the NLRB relating to the Company; (iv) pending representation question or union organizing activities respecting Page 23 a significant number of the employees of the Company; or (v) to the Knowledge of the Company, threat, investigation, charge or complaint with regard to any of the foregoing relating to the Company. 5.15. YEAR 2000 COMPLIANCE. Except as set forth on the Disclosure Schedule the computer software and related hardware of the Company and its Subsidiaries (the "COMPANY COMPUTER SYSTEM") used for the storage and processing of data have not suffered any adverse effects from the changing of the year from 1999 to 2000 that has had or would reasonably be expected to have a Material Adverse Effect. 5.16. ENVIRONMENTAL MATTERS. 5.16.1. (i) The Company and each of its Subsidiaries is in compliance with applicable Environmental Laws, except where the failure to so comply would not have or be reasonably expected to have a Material Adverse Effect; (ii) to the Knowledge of the Company, no real property (including buildings or other structures) currently or formerly owned, leased or operated by the Company or any of its Subsidiaries has been contaminated with, or has had any release of, any Hazardous Substance that the Company would reasonably be expected to be liable for any potential material investigation, clean up, claim or liability from such real property that would have or be reasonably expected to have a Material Adverse Effect on the Company; (iii) neither the Company nor any of its Subsidiaries is subject to liability for any Hazardous Substance disposal or contamination by their agents or employees on any third party property, except where the failure to so comply would not have or be reasonably expected to have a Material Adverse Effect; (iv) neither the Company nor any of its Subsidiaries has received any notice, demand letter, claim or request for information alleging any current material violation of, or material liability under, any Environmental Law; (v) neither the Company nor any of its Subsidiaries is subject to any Order or other agreement with any Governmental Entity or any third party relating to any Environmental Law; and (vi) the Company has delivered to Recap copies of all environmental reports, studies, sampling data, correspondence, filings and other environmental information in its possession or reasonably available to it relating to the Company, any Subsidiary of the Company and any currently owned, leased or operated property. 5.16.2. As used herein, the term "ENVIRONMENTAL LAW" means any federal, state or local law, regulation, order, decree, permit, authorization, opinion, common law or agency requirement relating to: (i) the protection or restoration of the environment, health, safety, or natural resources but specifically excluding worker safety laws such as OSHA and Cal-OSHA, (ii) the handling, use, presence, disposal, release or threatened release of any Hazardous Substance or (iii) wetlands, indoor air, pollution, contamination or any injury or threat of injury to persons or property in connection with any Hazardous Substance and the term "HAZARDOUS SUBSTANCE" means any substance in any concentration that is: (i) listed, classified or regulated as hazardous, toxic, infectious or carcinogenic pursuant to any Environmental Law; or (ii) any petroleum product or by-product, asbestos-containing material, lead-containing paint or plumbing, polychlorinated biphenyls, radioactive materials or radon. Page 24 5.17. TAX MATTERS. 5.17.1. (i) All Tax Returns that are required to be filed (taking into account any extensions of time within which to file) by or with respect to the Company and its Subsidiaries have been duly filed, (ii) all Taxes due have been paid in full or reserved on the Balance Sheet, (iii) all deficiencies asserted or assessments made as a result of such examinations have been paid in full or reserved on the Balance Sheet, (iv) no issues that have been raised by the relevant taxing authority in connection with the examination of any of the Tax Returns referred to in clause (i) are currently pending, and (v) no waivers of statutes of limitation have been given by or requested with respect to any Taxes of the Company or its Subsidiaries. The Company has made available to Recap true and correct copies of the United States federal income Tax Returns filed by the Company and its Subsidiaries for each of the three most recent fiscal years ended on or before December 31, 1998 and has provided the Tax Return for December 31, 1999, if available. Neither the Company nor any of its Subsidiaries has any liability with respect to income, franchise or similar Taxes that accrued on or before the end of the most recent period covered by the SEC Reports filed prior to the Original Agreement Date in excess of the amounts accrued with respect thereto that are reflected in the Financial Statements. Neither the Company nor any of its Subsidiaries is a party to any Tax allocation or sharing agreement, is or has been a member of an affiliated group filing consolidated or combined Tax Returns (other than a group the common parent of which is or was the Company) or otherwise has any liability for the Taxes of any person (other than the Company and its Subsidiaries). 5.18. INSURANCE. The Company has provided a list which is attached to the Disclosure Schedule of the insurance policies, binders, or bonds maintained by the Company or its Subsidiaries ("INSURANCE POLICIES"). All the Insurance Policies are in full force and effect; the Company and its Subsidiaries are not in material default thereunder; and all claims thereunder have been filed in due and timely fashion. No material claim by the Company on or in respect of an insurance policy or bond has ever been declined or refused by the relevant insurer or insurers. 5.19. ASSETS. The Company holds title to or a leasehold, consignment or license in each item of material tangible personal property owned or used by or in the possession of the Company. 5.20. STATEMENTS TRUE AND CORRECT. None of the information (including this Agreement) supplied or to be supplied by the Company or any of its Subsidiaries to any Governmental Entity in connection with the transactions contemplated hereby will, at the respective time such documents are supplied, be false or misleading with respect to any material fact, or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or omit to state any material fact necessary to correct any statement in any earlier communication to any Governmental Entity. 5.21. REGULATORY APPROVALS. Neither the Company nor any of its Subsidiaries has taken any action or has any Knowledge of any fact or circumstance that is reasonably likely to materially impede or delay receipt of any consents of a Governmental Entity necessary in connection with the consummation of the Merger, which if not obtained, Page 25 individually or in the aggregate, would be reasonably expected to have a Material Adverse Effect on the Company. 5.22. REAL PROPERTY AND LEASEHOLDS. 5.22.1. The Company owns all material parcels of real property currently indicated as owned in fee by the Company on the Financial Statements (the "OWNED REAL ESTATE"). The Company holds marketable and legal title to each of the real properties constituting Owned Real Estate, free and clear of all Encumbrances, except for Permitted Encumbrances, and except for Encumbrances the existence of which would not have a Material Adverse Effect. 5.22.2. To the Knowledge of the Company, the Company holds valid and subsisting leasehold interests in all material parcels of real property leased or subleased to the Company (collectively, the "LEASED REAL Estate"), free and clear of all Encumbrances, except for Permitted Encumbrances, and except for Encumbrances the existence of which would not have a Material Adverse Effect. 5.23. COMPANY ACTION. The Company Board has adopted resolutions recommending that this Agreement, the Asset Drop Down and the Merger be approved by its stockholders and directing that this Agreement, the Asset Drop Down and the Merger be submitted for consideration by its stockholders at the Special Meeting. 5.24. TAKEOVER STATUTES. Except for Section 203 of the DGCL, no Takeover Statute applicable to the Company is applicable to the Asset Drop Down or the Merger, the Recapitalization or the other transactions contemplated hereby. 5.25. EARN OUT PAYMENTS. The Disclosure Schedule lists and identifies all earn out cash payments that exceed the payout of $600,000 in the aggregate or earn out equity issuances required by the Company or any of its Subsidiaries. 5.26. OPINION. The Special Committee has received written opinions from Jefferies & Company, Inc. and Houlihan Lokey Howard & Zukin Capital, to the effect that, as of the Original Agreement Date, the Per Share Amount to be received in the Merger by the holders of the shares of Common Stock (other than the Rollover Holders) is fair to such holders from a financial point of view. 5.27. OPERATING COMPANY. As of the Original Agreement Date, the authorized capital stock of Operating Company consists solely of 1,000 shares of common stock, of which 1,000 are issued and outstanding. The Company is the sole stockholder of Operating Company. Since its incorporation, Operating Company was not engaged in any activities other than in connection with or as contemplated by this Agreement, the Asset Drop Down, the Merger and the Recapitalization or in connection with arranging any financing required to consummate the transactions contemplated hereby. 5.28. RIGHTS AGREEMENT. The Company and Continental Stock Transfer & Trust Corporation, as Rights Agent, have executed and delivered, or within two (2) days of the signing of this Agreement, will execute and deliver, the Rights Agreement Amendment, pursuant to which, the execution and delivery of and the performance of the transactions Page 26 contemplated by this Agreement would not result in the creation of an "Acquiring Person" or the occurrence of a "Distribution Date" as defined in the Rights Agreement, dated as of December 30, 1997, between the Company and the Rights Agent (the "RIGHTS AGREEMENT"). As of the date hereof, the Rights Agreement Amendment has not been withdrawn, modified, amended or supplemented and the Company is not aware of facts or circumstances that may reasonably be expected to result in the occurrence of a "Distribution Date" as defined in the Rights Agreement. 5.29. ASSET DROP DOWN. The consummation of the Asset Drop Down as contemplated in this Agreement will not result in a Material Adverse Effect on the Company. ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF RECAP Recap hereby represents and warrants to the Company as of the Original Agreement Date (or such other specific date as is indicated below with respect to particular representation and warranty) as follows: 6.1. ORGANIZATION, STANDING AND AUTHORITY. Recap is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Recap is duly qualified to do business and is in good standing in the states of the United States and any foreign jurisdictions where its respective ownership or leasing of property or assets or the conduct of its business requires it to be so qualified, except where the failure to be so qualified would not individually or in the aggregate have a Material Adverse Effect on Recap. Recap has the corporate power and authority and has taken all corporate action necessary in order to execute and deliver this Agreement and consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Recap and is a valid and legally binding obligation of it, enforceable against Recap in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors' rights or by general equity principles). Since the date of its incorporation, Recap has not engaged in any activities other than in connection with or as contemplated by this Agreement, the Merger, and the Recapitalization or in connection with cooperating to arrange any financing required to consummate the transactions contemplated hereby. 6.2. CONSENTS AND APPROVALS; NO DEFAULTS. 6.2.1. No consents or approvals of, or filings or registrations with, any Governmental Entity or with any third party are required to be made or obtained by Recap in connection with the execution, delivery or performance by Recap of this Agreement or to consummate the Merger except for (i) filings of applications, registrations, statements, reports or notices (and expiration of any applicable notice periods) with the United States Department of Justice, the Federal Trade Commission, NASD, the SEC and state securities authorities, (ii) the requisite approval of this Agreement by the holders of the capital stock of Recap (which approval has been secured), (iii) the filing of the Certificate of Merger with the Delaware Secretary of State pursuant to the DGCL and (iv) consents, approvals, filings, Page 27 or registrations listed on SCHEDULE 6.2.1 or which would not, individually or in the aggregate, have a Material Adverse Effect on Recap. 6.2.2. Subject to receipt of the approvals referred to in the preceding paragraph, and the expiration of related waiting periods, the execution, delivery and performance of this Agreement, the consummation of the transactions contemplated hereby, and compliance with the provisions hereof do not and will not (i) violate, or conflict with, or result in any breach of the terms, conditions, or provisions of the charter, bylaws or other organizational documents of Recap; (ii) violate, or conflict with, or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or give rise to a right of termination, cancellation, modification or acceleration of the performance required by or a loss of a material benefit under, or result in the creation or imposition of (or the obligation to create or impose) any Encumbrance (other than Permitted Encumbrances) upon any of the properties or assets of Recap under, any of the terms, conditions or provisions of any material agreement, indenture, note, bond, mortgage, deed of trust, undertaking, permit, lease, franchise, license or other instrument to which Recap is a party or by which it or any of its properties or assets may be bound or affected; or (iii) to the Knowledge of Recap, violate any Law or Order applicable to Recap, except for any such violation, conflict, breach, default, event, right or Encumbrance which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Recap. 6.2.3. Other than the approvals of Governmental Entities set forth in Section 6.2.1 hereof, to the Knowledge of Recap, there are no other approvals required to be given or obtained by Recap from any and all Governmental Entities in connection with the consummation of the transactions contemplated by this Agreement, except where the failure to be given or to obtain such approvals, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Recap. 6.3. CAPITALIZATION. As of the date hereof, the authorized capital stock of Recap consists of 5,000 shares of Recap Common Stock, of which as of the date hereof 1,000 shares are issued and outstanding, and 5,000 shares of preferred stock, $.01 par value per share, of which as of the date hereof no shares are outstanding. Immediately prior to the Effective Time, the authorized capital stock of Recap will consist of 10,000,000 shares of Recap Common Stock, of which immediately prior to the Effective Time there will be outstanding at least 956,667 shares. All outstanding shares of capital stock of Recap have been duly authorized and validly issued and are fully paid and nonassessable. Except as set forth in the Stockholder Agreement, there are no preemptive rights or outstanding subscriptions, options, warrants, rights, convertible securities or other agreements or commitments of any character relating to the issued or unissued capital stock or other securities of Recap. 6.4. REGULATORY APPROVALS. Recap has not taken any action and does not have any Knowledge of any fact or circumstance that is reasonably likely to materially impede or delay receipt of any consents of a Governmental Entity or result in the imposition of a condition or restriction with respect to any such consents. Page 28 6.5. BROKERS. All negotiations relative to this Agreement and the transactions contemplated hereby have been conducted by Recap and its Affiliates in such manner as not to give rise to, and the consummation of the transactions contemplated hereby will not give rise to, any valid claim against any party hereto or any of their directors, officers, stockholders or other Representatives or Affiliates for a brokerage commission, finder's fee or other like payment to any Person. 6.6. FINANCING. Recap has received, and has delivered to the Company Board copies of (a) a letter dated March 30, 2000 from Leonard Green & Partners, L.P., pursuant to which such Person has committed, subject to the terms and conditions set forth therein, to purchase equity securities of Recap immediately prior to the Merger for an aggregate amount of at least $152,000,000 (PROVIDED, that such equity commitment may be satisfied in part by the purchase of shares of New Series A Preferred Stock and New Series B Preferred Stock of the Surviving Corporation immediately following the Merger pursuant to Section 7.11), (b) (i) a letter dated March 30, 2000 from GS Mezzanine Partners II, L.P., pursuant to which such Person has committed, on its own behalf and on behalf of affiliated investment funds, subject to the terms and conditions set forth therein, to purchase notes from Company and Operating Company in an aggregate amount of $120,000,000, and (ii) a letter dated March 30, 2000 from Goldman Sachs Credit Partners L.P., pursuant to which such Person has committed, subject to the terms and conditions set forth therein, to enter into a credit agreement providing for loans to Operating Company of up to $325,000,000. As used in this Agreement, the aforementioned entities shall hereinafter be referred to as the "FINANCING ENTITIES." The aforementioned commitments shall be referred to as the "FINANCING LETTERS" and the financing to be provided thereunder shall be referred to as the "FINANCING." The aggregate proceeds of the Financing are in an amount sufficient to pay when due, pursuant to the terms and conditions herein, the full Merger Consideration as provided herein, to make all other necessary payments by Recap and the Surviving Corporation in connection with the Merger (including the repayment of Indebtedness of the Surviving Corporation as contemplated by the Financing Letters and any amounts payable in respect of Dissenting Shares), to provide a reasonable amount of working capital financing and to pay related fees and expenses. As of the date hereof, none of the Financing Letters has been withdrawn and Recap does not know of any facts or circumstances that may reasonably be expected to result in any of the conditions set forth in any of the Financing Letters not being satisfied. The foregoing notwithstanding, the Financing Letters may be superseded at the option of Recap after the date hereof but prior to the Effective Time by letters (the "NEW FINANCING LETTERS") delivered to the Company Board which contemplate a co-investment by a third party, which New Financing Letters shall be otherwise identical in all material respects to the Financing Letters except for changes necessary to reflect that co-investment, PROVIDED that the terms of the New Financing Letters shall not have any adverse effect upon the amount of or ability to consummate, or expand upon the conditions precedent to, the Financing as set forth in the Financing Letters. In such event, the term "Financing Letters" as used herein shall be deemed to refer to the New Financing Letters. 6.7. LITIGATION. There are no Actions pending, or to the Knowledge of Recap, claims threatened against Recap, at law or in equity, and there is no investigation or proceeding pending or, to the Knowledge of Recap, threatened before or by any Page 29 Governmental Entity nor is there any currently effective Order against Recap, except for any such Actions, claims, investigations, proceedings or Orders that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Recap. 6.8. STATEMENTS TRUE AND CORRECT. None of the information (including this Agreement) supplied or to be supplied by or on behalf of Recap to any Governmental Entity in connection with the transactions contemplated hereby will, at the respective time such documents are supplied, be false or misleading with respect to any material fact, or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or omit to state any material fact necessary to correct any statement in any earlier communication to any Governmental Entity. 6.9. NO PRIOR ACTIVITIES. Recap has not incurred, directly or indirectly, any material liabilities or obligations except those incurred in connection with its organization or with the negotiation and execution of this Agreement and the performance of the transactions contemplated hereby. Except as contemplated by this Agreement or in connection with the Merger, or the Recapitalization, Recap has not engaged, directly or indirectly, in any business or activity of any type or kind, or entered into any agreement or arrangement with any person or entity, and is not subject to or bound by any material obligation or undertaking. 6.10. FRAUDULENT TRANSFER LAWS. Assuming the Company is not insolvent immediately prior to the Effective Time, and further assuming the representations and warranties of the Company contained in this Agreement are true and accurate, the Surviving Corporation will not be insolvent immediately after the Effective Time, taking into account changes in assets and Liabilities (including the Financing) of the Surviving Corporation as a result of the Merger and the other transactions contemplated hereby. ARTICLE 7. COVENANTS 7.1. CONDUCT OF BUSINESS PENDING CLOSING. Except for actions contemplated by subparagraphs below, the Company agrees that on and after the Original Agreement Date and prior to the Closing Date, except as otherwise consented to by Recap in writing (which consent shall not be unreasonably withheld, delayed or conditioned), as set forth in the Disclosure Schedule, or as otherwise contemplated by this Agreement (including specifically Section 7.19 hereof): 7.1.1. The Company shall conduct its business in the ordinary course and consistent with past practice in all material respects; 7.1.2. The Company shall use reasonable best efforts to preserve the business organization of the Company intact, to preserve the goodwill of suppliers, customers, employees and others with whom business relationships exist and maintain all Permits and approvals; 7.1.3. Other than in connection with acquisitions in the ordinary course of business, not to exceed $10,000,000 individually or $17,500,000 in the aggregate in total Page 30 consideration (including but not limited to cash paid, seller notes, Indebtedness assumed or other such consideration, including earn out obligations) (the "PERMITTED ACQUISITIONS"), the Company shall not borrow any money, incur any Indebtedness or guarantee any Indebtedness or financial obligation of any Person other than Subsidiaries, other than to finance working capital requirements in the ordinary course of business and consistent with past practice; 7.1.4. Other than in connection with Permitted Acquisitions, the Company shall not issue, sell or dispose of any capital stock or other equity interest in the Company or options, warrants or other rights to purchase any such capital stock or equity interest or any securities convertible into or exchangeable for such capital stock or equity interests or otherwise make or effect any change in the issued and outstanding capitalization of the Company other than pursuant to agreements existing as of the Original Agreement Date; 7.1.5. The Company shall not cause or permit any amendment, alteration or modification in the terms of any currently outstanding options, warrants or other rights to purchase any capital stock or equity interest in the Company or any securities convertible into or exchangeable for such capital stock or equity interest, including without limitation any reduction in the exercise or conversion price of any such rights or securities, any change to the vesting or acceleration terms of any such rights or securities, or any change to terms relating to the grant of any such rights or securities other than pursuant to agreements existing as of the Original Agreement Date; 7.1.6. The Company shall not declare or pay any dividend or make any other distribution, or transfer any assets, to any stockholders of the Company with respect to the Common Stock, or redeem, repurchase or otherwise reacquire any of its capital stock, except in the ordinary course of business; 7.1.7. Other than Permitted Acquisitions, capital expenditures permitted under this Agreement or agreements to manage practices pursuant to the management agreements and administrative services agreements of the Company with hospitals and professional corporations in accordance with past practice, the Company shall not enter into any contracts or agreements (written or oral) that provide for minimum mandatory payments in the aggregate by any party in excess of $2,000,000 per contract per annum, and to the extent the Company is a party to any such contract or agreement as of the Original Agreement Date, the Company shall not amend or waive any material rights under any such contract; 7.1.8. Subject to the provisions of Section 7.5 hereof, other than Permitted Acquisitions, the Company shall not purchase all or any substantial part of the properties or assets of, or otherwise acquire, merge or consolidate with, any Person (or division thereof); 7.1.9. The Company shall not sell, lease, transfer, assign or otherwise dispose of any material portion of its properties or assets, except for sales in connection with any transaction to which the Company is contractually obligated prior to the Original Agreement Date or as consistent with past business practice, or as would not reasonably be expected to have a Material Adverse Effect on the Company; Page 31 7.1.10. Except pursuant to any agreement in existence on the Original Agreement Date, the Company shall not sell, lease, transfer, assign or otherwise dispose of any material Owned Real Estate or Leased Real Estate, and the Company shall not permit any lease or sublease of Leased Real Estate to terminate or expire (except in accordance with its terms), in each case except as otherwise provided in this Agreement or as consistent with past business practices or would not reasonably be expected to have a Material Adverse Effect on the Company; 7.1.11. Except as may be required by law or under any existing agreements heretofore disclosed to Recap, the Company shall not increase the compensation or fringe benefits payable or to become payable by the Company to any of the Executive Officers of the Company, other than routine or customary increases made in the ordinary course of business and consistent with past practice; 7.1.12. Except as set forth in the Disclosure Schedule, the Company shall not make any material change in the character of its business or operations that would, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect on the Company; 7.1.13. Except as may be required by law or by GAAP, the Company shall not change its significant accounting principles, methods or practices, other than changes that are made in the ordinary course of business and/or that would not have a detrimental impact on the financial condition of the Company; 7.1.14. The Company shall (i) use reasonable best efforts to maintain its existing Permits and approvals, and (ii) carry on its business in compliance with applicable Law, except for failures to comply that would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect on the Company; 7.1.15. The Company shall not enter into any agreement or take or commit to take any action with the intent that would, if taken on or before the Closing, result in a breach of any of the foregoing covenants contained in this Section 7.1 or of any representation or warranty of the Company contained in this Agreement; 7.1.16. Subject to the provisions of Section 7.5 hereof, the Company shall not take any action, enter into any agreement, alter any policy or commit to any of the foregoing if such action, agreement or policy would restrict the ability of the Company to consummate the Recapitalization or the Merger, and the transactions contemplated herein; 7.1.17. The Company shall not settle or resolve any litigation, arbitration or other adjudication matter not covered by insurance, if such settlement or resolution would result in a payment in excess of $2,500,000 in the aggregate; and 7.1.18. The Company may not make any aggregate cash payment for or incur any new obligations for capital expenditures other than capital expenditures in the ordinary course of business consistent with past practice in amounts not exceeding $15,000,000. Page 32 7.2. ACCESS. The Company shall permit Recap and its Representatives to have reasonable access during normal business hours, upon reasonable notice and in such manner as will not unreasonably interfere with the conduct of the Company's business, to all of the directors, officers, employees, agents and Representatives of the Company and all properties, books, records, operating instructions, procedures and Tax Returns of the Company and all other information with respect to the Company, its business and operations and its assets and properties as Recap or its Representatives may from time to time reasonably request, and to make copies of such books, records and other documents. 7.3. PERMITS AND APPROVALS. The Company and Recap shall use reasonable best efforts to obtain all Permits and approvals reasonably necessary for the consummation of the transactions contemplated hereby and to permit the Company, following the Closing, to continue to conduct its business in substantially the manner it is being conducted as of the Original Agreement Date, except as would not otherwise, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect on the Company. The Company shall use reasonable best efforts to obtain all authorizations from any Person as may be required for it to consummate the transactions contemplated hereby in accordance with the terms of this Agreement, and if the Company, despite such efforts, is unable to obtain any such authorizations, the Company shall take, or cause to be taken, all other reasonable actions necessary, proper or advisable in order for it to fulfill its obligations hereunder and to carry out the intentions of the parties expressed herein. 7.4. LITIGATION. Until the Closing, each of the Company and Recap shall promptly notify the other of any Action which is threatened or commenced that materially relates to or materially affects the Company, its business, its properties or assets, this Agreement or the transactions contemplated hereby. 7.5. ACQUISITION PROPOSALS. 7.5.1. The Company agrees that neither it nor any of its officers and directors shall, and the Company shall direct and use its reasonable best efforts to cause its Representatives (including, without limitation, any investment bankers, attorneys or accountants) not to, directly or indirectly, initiate, solicit, encourage, enter into or conduct discussions or negotiations with or provide any non-public information to any Person or group (other than Recap and its designees) concerning any Acquisition Proposal; PROVIDED, HOWEVER, that (a) nothing herein shall prevent the Company Board from taking and disclosing to the Company's stockholders a position contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to any tender offer and otherwise complying with such rules, PROVIDED that the Company Board shall not recommend that the stockholders of the Company tender their Shares in connection with any such tender offer unless the Company Board, acting upon a recommendation of the Special Committee, and after consultation with legal counsel, determines that there is a substantial likelihood that it is required to do so in order to comply with its fiduciary duties; and (b) if the Company Board, acting upon a recommendation of the Special Committee, and after consultation with legal counsel, determines that there is a substantial likelihood that it is required to do so in order to comply with its fiduciary duties, the Company Board may, and may authorize or permit any of its officers, directors, employees, Representatives or agents to, respond to inquiries from, discuss with, negotiate with, and provide non-public information to, any Page 33 other Person concerning an Acquisition Proposal. The Company will notify Recap immediately if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with the Company, including setting forth the material terms of the proposal and the identity of the party making such proposal, and Company shall promptly notify Recap of the status and any material developments concerning the same, including furnishing copies of any such written inquiries or proposals. The Company will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing and shall make all reasonable efforts to enforce any confidentiality agreements to which it is a party; PROVIDED, that the Company may waive the enforcement of any such confidentiality agreement if the Company Board, acting upon recommendations of the Special Committee, and after consultation with legal counsel, determines that there is a substantial likelihood that it is required to do so in order to comply with its fiduciary duties. The Company will take the necessary steps to inform the appropriate individuals or entities referred to in the prior sentence of the obligations undertaken in this Section 7.5. 7.5.2. Except as set forth in this Section 7.5.2, the Company Board shall not withdraw its recommendation of the transactions contemplated hereby or approve or recommend, or cause the Company to enter into any agreement with respect to, any Acquisition Proposal. Notwithstanding the foregoing, if the Company Board, acting upon a recommendation of the Special Committee, and after consultation with legal counsel, determines that there is a substantial likelihood that it is required to do so in order to comply with its fiduciary duties, the Company Board may withdraw its recommendation of the transactions contemplated hereby or approve or recommend a Superior Proposal; PROVIDED, HOWEVER, that the Company shall not be entitled to enter into any agreement with respect to a Superior Proposal unless and until the Company Board provides written notice to Recap (a "NOTICE OF SUPERIOR PROPOSAL") advising Recap that the Company Board has received a Superior Proposal, specifying the material terms and conditions of such Superior Proposal and identifying the Person making such Superior Proposal; PROVIDED, FURTHER, HOWEVER, that the Company shall not be entitled to enter into any agreement with respect to a Superior Proposal unless and until this Agreement is terminated by its terms pursuant to Section 9.1.3 and the Company has paid all amounts due to Recap pursuant to Section 9.3. For the purposes of this Agreement, "ACQUISITION PROPOSAL" means the following: (i) the acquisition of the Company by merger or otherwise by any Person (which includes a "person" as such term is defined in Section 13(d)(3) of the Exchange Act) other than Recap or any Affiliate thereof (a "THIRD PARTY"); (ii) the acquisition by a Third Party of more than 20% of the total assets of the Company; (iii) the acquisition by a Third Party of more than 20% of the outstanding shares of Common Stock (either directly from the Company or from stockholders of the Company); (iv) the adoption by the Company of a plan of liquidation or the declaration or payment of an extraordinary dividend; (v) the repurchase by the Company of more than 20% of the outstanding shares of Common Stock; or (vi) the acquisition by the Company by merger, purchase of stock or assets, joint venture or otherwise of a direct or indirect ownership interest or investment in any business the annual revenues, net income or assets of which is equal or greater than 20% of the annual revenues, net income or assets of the Company. For purposes of this Agreement a "SUPERIOR PROPOSAL" means any bona fide Acquisition Proposal with terms which the Company Board, acting upon a recommendation of the Special Committee, after taking into consideration advice of a financial adviser of Page 34 nationally recognized reputation, determines to be more favorable to the Company's stockholders (other than the Rollover Holders) than the Merger. 7.6. HSR NOTIFICATION. 7.6.1. FILINGS. As soon as reasonably practicable, each of the Company and Recap shall file, or cause to be filed, with the Federal Trade Commission and the Antitrust Division of the United States Department of Justice pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), the notification and documentary material required in connection with the transactions contemplated hereby. 7.6.2. COOPERATION. Recap and the Company shall promptly file any additional information requested as soon as reasonably practicable after receipt of a request for additional information. Recap and the Company shall use their reasonable best efforts to obtain early termination of the applicable waiting period under the HSR Act. The parties hereto will coordinate and cooperate with one another in exchanging such information and providing such reasonable assistance as may be requested in connection with such filings. 7.6.3. OTHER ACTIONS. The Company agrees that, in order to comply with the HSR Act in connection with the transactions contemplated hereby, Recap shall be entitled, in its sole discretion, to acquiesce to any divestitures, operating restrictions or other constraints imposed or required by any Governmental Entity; PROVIDED that such divestitures, operating restrictions or other constraints shall not have any material effect on the terms of the Merger; and PROVIDED, FURTHER, that such divestitures, operating restrictions or other constraints shall only be consummated or take effect (as the case may be) concurrently with or following the consummation of the Merger. 7.7. FINANCIAL STATEMENT DELIVERIES. As soon as is reasonably practicable and in no event later than thirty-five (35) days from the last day of each fiscal month between the Original Agreement Date and the Closing Date, the Company shall prepare and provide to Recap the monthly financial reports routinely prepared for management of the Company, including the profit and loss column reports, same store revenue reports, detail hospital profit and loss and regional consolidated reports, comparative profit and loss reports by region and any other financial reports prepared for management (the "UPDATED FINANCIAL STATEMENTS"), utilizing the same format and methodology used in preparing such reports as are provided internally to management. As soon as reasonably practicable between the Original Agreement Date and the Closing Date, the Company shall deliver drafts of any Form 10-Q or Form 10-K, including any revisions or amendments thereto, prepared or filed by the Company. 7.8. COVENANT TO SATISFY CONDITIONS. Each of the Company and Recap will use reasonable best efforts to ensure, and to cause their respective Affiliates to ensure, that the conditions set forth in Article 8 hereof are satisfied, insofar as such matters are within the control of such party. Each such party shall promptly consult with the other with respect to, and provide to the other any legally permitted information and copies of, all filings made by such party with any Governmental Entity or any other information supplied by such party to a Governmental Entity (other than confidential personnel information) in connection with this Agreement and the transactions contemplated hereby. Recap and the Page 35 Company further covenant and agree, with respect to any pending or threatened Action, preliminary or permanent injunction or other Order, decree or ruling, or statute, rule, regulation or executive order that would adversely affect the ability of the parties hereto to consummate the transactions contemplated hereby, to use reasonable best efforts to prevent or lift the entry, enactment or promulgation thereof, as the case may be. Upon the request of Recap, the Company agrees that it shall use reasonable best efforts to secure waivers and/or consents from such third parties as may be necessary or desirable in Recap's reasonable judgment in order to consummate the transactions contemplated hereby. 7.9. PROXY STATEMENT. As soon as reasonably practicable, the Company shall prepare and file the draft proxy statement relating to the Special Meeting and such other reports, schedules or other information (including Schedule 13E-3 under the Exchange Act) as may be required with the SEC, respond to comments of the staff of the SEC, if any, file the definitive proxy statement (the "COMPANY PROXY STATEMENT") as soon as practicable, and promptly thereafter mail such Company Proxy Statement to all holders of record (as of the applicable record date) of shares of Common Stock. The Company and Recap shall cooperate reasonably with each other in the preparation of the proxy statement and such other materials. Recap shall provide, and shall cause its Affiliates to provide, the Company and any of its Affiliates with any information for inclusion in the Company Proxy Statement or any other filings required to be made by the Company or any of its Affiliates with any Governmental Entity in connection with the transactions contemplated by this Agreement which may be required under applicable law and which is reasonably requested by the Company or any of its Affiliates. The Company agrees that Recap shall be given reasonable opportunity to review and comment on the draft proxy statement relating to the Special Meeting and such other materials and to approve such draft proxy statement and such other materials prior to their filing (which approval will not be unreasonably withheld) and thereafter to participate in discussions concerning the comments of the SEC staff and to approve all responses thereto (which approval will not be unreasonably withheld, delayed or conditioned). The Company shall promptly notify Recap of the receipt of the comments of the SEC and of any request from the SEC for amendments or supplements to the Company Proxy Statement or for additional information, and will promptly supply Recap with copies of all correspondence between the Company or its Representatives, on the one hand, and the SEC or members of its staff, on the other hand, with respect to the Company Proxy Statement, the Asset Drop Down, or the Merger. If at any time prior to the Special Meeting any event should occur which is required by applicable law to be set forth in an amendment of, or a supplement to, the Company Proxy Statement, the Company will promptly inform Recap. In such case, the Company, with the cooperation of Recap, will, upon learning of such event, promptly prepare and mail such amendment or supplement; PROVIDED, that prior to such mailing, the Company shall consult with Recap with respect to such amendment or supplement and shall afford Recap reasonable opportunity to comment thereon. The Company will notify Recap at least 24 hours prior to the mailing of the Company Proxy Statement, or any amendment or supplement thereto, to the stockholders of the Company. 7.10. STOCKHOLDERS' MEETING. The Company shall take all action necessary, in accordance with applicable law and its certificate of incorporation and bylaws, to convene a Special Meeting of the holders of the shares of Common Stock (the "SPECIAL MEETING") as promptly as practicable for the purpose of approving the Asset Drop Down and the Merger. The Company shall through the Company Board recommend at such Page 36 Special Meeting that the Asset Drop Down and the Merger be approved by its stockholders; PROVIDED, HOWEVER, that the Company Board may withdraw its recommendation in accordance with the provisions of Section 7.5 hereof. 7.11. FINANCING. Recap agrees to use its reasonable best efforts to cooperate in obtaining, on terms reasonably satisfactory to Recap, all of the financing necessary in connection with the consummation of the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, the Company acknowledges receipt of the "Financing Letters" referred to in Section 6.6 hereof and undertakes to use its reasonable best efforts to fulfill, or cause to be fulfilled, its obligations thereunder and to cooperate in the obtaining of the Financing. Recap agrees to cause a portion of the equity commitment pursuant to Section 6.6(a) to be satisfied as follows: immediately following the Merger, (i) the certificate of incorporation of the Surviving Corporation will be amended to create a new series of preferred shares designated as the Series A Senior Preferred Stock, $.01 par value, of the Surviving Corporation, the terms of which shall be as summarized in Annex A hereto (the "NEW SERIES A PREFERRED STOCK"), and a new series of preferred shares designated as the Series B Junior Preferred Stock, $.01 par value, of the Surviving Corporation, the terms of which shall be as summarized in Annex A hereto (the "NEW SERIES B PREFERRED STOCK"), and (ii) the balance of the equity commitment pursuant to Section 6.6(a) (i.e., the amount of such commitment not satisfied by the purchase of Recap Common Stock prior to the Merger) shall be satisfied by the purchase of shares of New Series A Preferred Stock and New Series B Preferred Stock. 7.12. DISCLOSURE PRIOR TO CLOSING. In the event that, at any time prior to the Closing, the Company or Recap becomes aware of any matter that, if existing or known as of the Original Agreement Date, would have been required to be set forth or described in the Schedules hereto or would otherwise have rendered any representation or warranty false, such party shall promptly provide written notice of such matters to the other party. However, no such notice provided under this Section 7.12 shall be deemed to cure any breach of any representation or warranty made in this Agreement whether for purposes of determining whether or not the conditions set forth in Article 8 hereof have been satisfied or otherwise. In addition, the Company shall promptly provide written notice of any events occurring after the Original Agreement Date and prior to the Closing that individually or in the aggregate have had or are reasonably expected to have a Material Adverse Effect on the Company. 7.13. DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION. The Surviving Corporation will indemnify each person who is now, or has been at any time prior to the Original Agreement Date, a director, officer, employee or agent of the Company (including its Subsidiaries) or their successors and assigns (individually an "INDEMNIFIED PARTY" and collectively the "INDEMNIFIED PARTIES"), to the fullest extent permitted (i) by applicable law, (ii) under the certificate of incorporation or bylaws of the Company, or (iii) under any agreement with the Company as in effect immediately prior to the execution of this Agreement, with respect to any claim, Liability, loss, damage, judgment, fine, penalty, amount paid in settlement or compromise, cost or expense, including reasonable fees and expenses of legal counsel (whenever asserted or claimed), based in whole or in part on, or arising in whole or in part out of, any matter, state of affairs or occurrence existing or occurring at or prior to the Effective Time whether Page 37 commenced, asserted or claimed before or after the Effective Time, including, Liability arising under the Securities Act, the Exchange Act or state law or Liability based in whole or in part on or arising in whole or in part out of or pertaining to the Agreement or the transactions contemplated hereby. The Surviving Corporation shall faithfully assume and honor in all respects the obligations of the Company pursuant to the Company's certificate of incorporation, bylaws and any indemnification agreements between the Company and any of the Persons mentioned in the first sentence of this Section 7.13 existing and in force as of the Original Agreement Date to the extent permitted under applicable law. The Surviving Corporation will also maintain in effect for not less than six years after the Effective Time the current policies of directors' and officers' liability insurance maintained by the Company on the Original Agreement Date (PROVIDED that the Surviving Corporation may substitute therefor policies having at least the same coverage, with a comparably rated insurer and containing terms and conditions which are no less advantageous to the persons currently covered by such policies) with respect to matters existing or occurring at or prior to the Effective Time; PROVIDED, however, that if the aggregate annual premiums for such insurance during such period exceed 200% of the per annum rate of the aggregate premium currently paid by the Company for such insurance on the Original Agreement Date, then the Surviving Corporation will provide the maximum coverage that will then be available at an annual premium equal to 200% of such rate. The rights under this Section 7.13 are in addition to rights that an Indemnified Party may have under the certificate of incorporation, bylaws or other similar organizational documents of the Company or any Subsidiary or under the DGCL. The rights under this Section 7.13 are contingent upon the occurrence of, and will survive consummation of, the Merger and are expressly intended to benefit each Indemnified Party. Notwithstanding the provisions of the preceding sentence, in the event of any claim (whether arising before or after the Effective Time) that may be subject to indemnification hereunder, upon receipt from the Indemnified Party to whom expenses are advanced of an undertaking to repay such advances to the extent required by law, the Company shall advance expenses to each such Indemnified Party, including the payment of the fees and expenses of counsel selected by such Indemnified Party, which counsel shall be reasonably satisfactory to the Company, promptly after statements therefore are received. Each Indemnified Party (and their respective heirs and estates) is intended to be a third party beneficiary of this Section 7.13 and may specifically enforce its terms. 7.14. OPTIONS AND CONVERTIBLE DEBENTURES. The Company shall use its reasonable best efforts to obtain the rollover, the exercise or the cancellation of the Options and Rollover Options as set forth in Section 2.6. The Surviving Corporation shall assume the Rollover Options pursuant to Section 2.6 and in accordance with the respective Stock Option Plan, and the exercise price and number of shares underlying each such option shall be adjusted equitably to reflect the effect of the Merger. The Company shall use its reasonable best efforts to obtain the receipt of any approvals or consents from the holders of the Convertible Debentures, if any, to this Agreement and the transactions contemplated hereby; PROVIDED, HOWEVER, that Recap acknowledges that the consummation of the transactions contemplated hereby will constitute a change of control under the terms of the Convertible Debentures. 7.15. ANTITAKEOVER STATUTES. If any Takeover Statute (as defined below) is or may become applicable to the transactions contemplated hereby, the Company Board will grant such approvals and take such actions as are necessary so that the transactions Page 38 contemplated hereby and thereby may be consummated as promptly as practicable on the terms contemplated hereby and thereby and otherwise act to eliminate the effects of any Takeover Statute on any of the transactions contemplated hereby or thereby. For purposes of this Agreement, a "TAKEOVER STATUTE" means a "fair price", "moratorium", "control share acquisition" or other similar antitakeover statute or regulation enacted under state or federal laws in the United States, including Section 203 of the DGCL. 7.16. REGULATORY APPLICATIONS. 7.16.1. Each of the Company and Recap and their respective Subsidiaries shall cooperate and use their respective reasonable best efforts to prepare all documentation, to effect all filings and to obtain all permits, consents, approvals and authorizations of all third parties and Governmental Entities necessary to consummate the transactions contemplated by this Agreement. Each of the Company and Recap shall have the right to review in advance, and to the extent practicable each will consult with the other, in each case subject to applicable laws relating to the exchange of information, with respect to all material written information submitted to any third party or any Governmental Entity in connection with the transactions contemplated by this Agreement. In exercising the foregoing right, each of the parties hereto agrees to act reasonably and as promptly as practicable. Each party hereto agrees that it will consult with the other parties hereto with respect to the obtaining of all material permits, consents, approvals and authorizations of all third parties and Governmental Entities necessary or advisable to consummate the transactions contemplated by this Agreement and each party will keep the other parties appraised of the status of material matters relating to completion of the transactions contemplated hereby. 7.16.2. Each party agrees, upon request, to furnish the other parties with all information concerning itself, its Subsidiaries, directors, officers and stockholders and such other matters as may be reasonably necessary or advisable in connection with any filing, notice or application made by or on behalf of such other parties or any of their respective Subsidiaries to any third party or Governmental Entity. 7.17. NOTICES OF CERTAIN EVENTS. Each of the parties hereto shall promptly notify the other parties of: 7.17.1. the receipt by such party of any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement; 7.17.2. the receipt by such party of any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; and 7.17.3. any Actions commenced or, to the best of such party's Knowledge, threatened against, or affecting, such party which, if pending on the Original Agreement Date, would have been required to have been disclosed pursuant to this Agreement or which relate to the consummation of the transactions contemplated by this Agreement. Page 39 7.18. DELIVERY OF OPINION OF FINANCIAL ADVISOR. The Company agrees to deliver to Recap a true and complete copy of the written opinions of Jefferies & Company, Inc. and Houlihan Lokey Howard & Zukin Capital (if not already so delivered), promptly following the execution and delivery of this Agreement. 7.19. ASSET DROP DOWN. The Company and Operating Company shall use reasonable best efforts to effect and consummate the Asset Drop Down (which is necessary for the consummation of the Merger and the transactions contemplated hereby) and to permit Recap to participate in the timing and structuring of the Asset Drop Down. ARTICLE 8. CONDITIONS OF MERGER 8.1. GENERAL CONDITIONS. The obligations of the parties to effect the Closing shall be subject to the following conditions unless waived in writing by Recap and the Company: 8.1.1. NO LAW OR ORDERS. No Law or Order shall have been enacted, entered, issued or promulgated by any Governmental Entity (and be in effect) which prohibits the consummation of the Asset Drop Down, the Merger or the Recapitalization. 8.1.2. HSR. Any applicable waiting period under the HSR Act shall have expired or have been terminated with respect to the transactions contemplated hereby. 8.1.3. LEGAL PROCEEDINGS. No Governmental Entity shall have initiated proceedings to restrain or prohibit the Merger or the Recapitalization or force rescission, unless such Governmental Entity shall have withdrawn and abandoned any such proceedings prior to the time which otherwise would have been the Closing Date and there shall not have been any Law or Order which would require the divestiture by the Company or its Subsidiaries of a material portion of their respective businesses, assets or properties, taken as a whole, or impose any material limitation on the ability of the Company and its Subsidiaries, taken as a whole, to conduct their respective businesses and own their assets and properties, taken as a whole, following the Closing. 8.1.4. STOCKHOLDER APPROVAL. The Asset Drop Down and the Merger shall have been approved by the requisite vote of the holders of the outstanding capital stock of the Company entitled to vote thereon at the Special Meeting. 8.1.5. REGULATORY APPROVAL. All regulatory approvals or waivers required to consummate the Asset Drop Down, the Merger or the Recapitalization shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired, other than those the failure of which to be obtained or maintained would not have or reasonably be expected to have a Material Adverse Effect on the Company or Recap, and no such approvals or waivers shall contain any conditions, restrictions or requirements which would (i) following the Effective Time, have a Material Adverse Effect on the Surviving Corporation and its Subsidiaries, taken as a whole or (ii) reduce the benefits of the transactions contemplated hereby to such a degree that Recap would not have entered into this Agreement had such conditions, restrictions or requirements been known at the Original Agreement Date. Page 40 8.1.6. THIRD PARTY CONSENTS. The Company shall have received all requisite consents from third parties (other than Governmental Entities) required by any contract between such third parties and the Company or any of its Subsidiaries to be obtained prior to the consummation of the Asset Drop Down, the Merger or the Recapitalization, which if not obtained, individually or in the aggregate, would have a Material Adverse Effect. 8.1.7. PERMITS AND APPROVALS. The Company shall have made or obtained all Permits and approvals which are legally required to be obtained by the Company or any Subsidiary from any Governmental Entity prior to consummation of the Merger or the Recapitalization, which if not obtained, individually or in the aggregate, would have a Material Adverse Effect. 8.2. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The obligations of the Company to close the transactions contemplated by this Agreement shall be subject to the satisfaction on or prior to the Closing Date of each of the following conditions precedent, any of which may be waived by the Company: 8.2.1. ACCURACY OF RECAP'S REPRESENTATIONS AND PERFORMANCE OF OBLIGATIONS. (a) All representations and warranties made by Recap in this Agreement, any Schedule or any agreement, certificate or instrument to be executed by Recap pursuant hereto shall be true and correct in all material respects on the date when made and on and as of the Closing Date (unless the representations and warranties address matters as of a particular date, in which case they shall remain true and correct in all respects as of such date; PROVIDED, that a "particular date" for purposes of -------- this parenthetical shall not include the fact that a representation or warranty is given as of the Original Agreement Date, it being the intention of the parties that representations and warranties made as of the Original Agreement Date, without further qualification as to the date as of which such representations and warranties are given, shall be "brought down" to the Closing Date) with the same effect as if made on and as of the Closing Date (without regard to any amendment or supplement of any such Schedule, agreement or instrument after the Original Agreement Date), except where such failures, in each case or in the aggregate, have not had and are not reasonably expected to have a Material Adverse Effect on Recap. (b) Recap shall have performed or complied in all material respects with all covenants contained in this Agreement, or any agreement, certificate or instrument to be executed by Recap pursuant hereto required to be performed or complied with by Recap either at or prior to the Closing. 8.2.2. RECAP DELIVERIES. Recap shall have delivered, or shall have caused to be delivered, to the Company at or prior to the Closing the following: Page 41 (a) a certified copy of the resolutions duly adopted by the board of directors of Recap authorizing this Agreement and the transactions contemplated hereby and thereby; (b) such other documents, instruments or certificates as shall be reasonably requested by the Company or its counsel; and (c) a certificate of the president or any vice president and secretary or any assistant secretary of Recap certifying to the matters set forth in Sections 8.2.1(a) and (b) above. 8.2.3. FINANCING. All financing necessary in connection with the consummation of the transactions contemplated by this Agreement shall have been obtained (including, without limitation, the purchase of shares of New Series A Preferred Stock and New Series B Preferred Stock in accordance with Section 7.11). 8.2.4. RECAPITALIZATION. All parties (other than the Company, Operating Company and their respective Affiliates) to the Recapitalization have entered into and delivered to the other parties thereto the agreements contemplated by, and performed all actions required by them to consummate, the Recapitalization. 8.3. CONDITIONS PRECEDENT TO OBLIGATIONS OF RECAP. The obligations of Recap to close the transactions contemplated by this Agreement shall be subject to the satisfaction on or prior to the Closing Date of each of the following conditions precedent, any of which may be waived by Recap: 8.3.1. ACCURACY OF THE COMPANY'S REPRESENTATIONS AND PERFORMANCE OF OBLIGATIONS. (a) All representations and warranties made by the Company in this Agreement, any Schedule or any agreement, certificate or instrument to be executed by the Company pursuant hereto shall be true and correct in all material respects on the date when made and on and as of the Closing Date (unless the representations and warranties address matters as of a particular date, in which case they shall remain true and correct in all respects as of such date; PROVIDED, that a -------- "particular date" for purposes of this parenthetical shall not include the fact that a representation or warranty is given as of the Original Agreement Date, it being the intention of the parties that representations and warranties made as of the Original Agreement Date, without further qualification as to the date as of which such representations and warranties are given, shall be "brought down" to the Closing Date) with the same effect as if made on and as of the Closing Date (without regard to any amendment or supplement of any such Schedule, agreement or instrument after the Original Agreement Date), except where such failures, in each case or in the aggregate, have not had and are not reasonably expected to have a Material Adverse Effect on the Company. (b) The Company shall have performed or complied with all covenants contained in this Agreement, or any agreement, certificate or instrument to be Page 42 executed by the Company pursuant hereto required to be performed or complied with by the Company either at or prior to the Closing, except where such failure to perform or comply with, individually or in the aggregate, has not had, and are not reasonably expected to have a Material Adverse Effect on the Company. 8.3.2. COMPANY ADVERSE CHANGES. There shall not have occurred after the Original Agreement Date any events which individually or in the aggregate have had or are reasonably expected to have a Material Adverse Effect on the Company. 8.3.3. DELIVERIES. The Company shall have delivered, or shall have caused to be delivered, to Recap at or prior to the Closing the following: (a) certified copies of the resolutions duly adopted by the Company Board and by the holders of the Company's Common Stock, authorizing this Agreement and the transactions contemplated hereby; and (b) a certificate of the chief executive officer, president or any vice president and secretary or any assistant secretary of the Company certifying to the matters set forth in Section 8.3.1(a) and (b) above. 8.3.4. FINANCING. All financing set forth in the "Financing Letters" referred to in Section 6.6 shall have been obtained, it being acknowledged that if the parties to the Financing Letters or New Financing Letters (other than Parent and Leonard Green & Partners, L.P.) are prepared to perform thereon (or would have been prepared to perform had Parent and Leonard Green & Partners, L.P. performed as contemplated thereby), this condition contained in this Section 8.3.4 shall be deemed to have been satisfied. 8.3.5. RECAPITALIZATION. All parties (other than Recap and its Affiliates) to the Recapitalization have entered into and delivered to the other parties thereto the agreements contemplated by, and performed all actions required by them to consummate, the Recapitalization. 8.3.6. ACCOUNTING PRINCIPLES. Except as set forth on the Disclosure Schedule, from the fiscal year ended December 31, 1999 and prior to the Effective Time, the Company shall not have altered, modified or amended, or be required in the future to make any alteration, modification or amendment of, any of its material accounting principles, methods or practices, other than (a) such alterations, modifications or amendments that are applicable generally and are not directed specifically to the Company, and (b) such alterations, modifications or amendments that do not, individually or in the aggregate, have a Material Adverse Effect on the Company. 8.3.7. PUSH-DOWN ACCOUNTING. There shall not have occurred after the Original Agreement Date any material change in accounting rules (including but not limited to GAAP), or in the applicable federal and state securities Laws, or any action by the Company or its Subsidiaries, which results in or triggers push-down accounting treatment for the Merger. Page 43 8.3.8. DISSENTING SHARES. The aggregate number of Dissenting Shares shall not equal 15% or more of the shares of Common Stock outstanding as of the record date for the Special Meeting. 8.3.9. ROLLOVER SCHEDULE. The Company shall have delivered, or shall have caused to be delivered, the Rollover Schedule to Recap prior to the Closing. The Rollover Schedule shall have identified the following forms of consideration for shares of common stock of the Surviving Corporation: (i) a number of shares of Common Stock held by Robert Antin or assigns on the Original Agreement Date that have an aggregate value equal to $2,000,000 (each share to be valued at the Per Share Amount, subject to the adjustment provided in Section 2.2.7), provided, however, that such number of shares may have a value of less than $2,000,000, as adjusted, if the Company has received the prior written consent of Vicar Recap (the aggregate value of such number of shares, as adjusted or reduced, the "ROBERT ANTIN ROLLOVER VALUE"), and (ii) (a) a number of shares of Common Stock (the "ADDITIONAL ROLLOVER SHARES NUMBER") held by certain Other Contributing Stockholders, (b) certain outstanding Options (the "CONTRIBUTED OPTIONS") held by certain Other Contributing Stockholders, (c) certain cash payments (the "ROLLOVER PAYMENTS") that may be made by certain Other Contributing Stockholders, and (d) certain loans ("LOANS") that may be made by the Surviving Corporation to certain Other Contributing Stockholders and any other consideration ("OTHER CONSIDERATION") that may be provided by certain Other Contributing Stockholders (the value of any Other Consideration, together with the principal amount of the Loans, the "OTHER CONSIDERATION AMOUNT") (provided, however, that Loans and Other Consideration may be set forth on the Rollover Schedule only with the prior written consent of Vicar Recap), such that the sum of (A) the Robert Antin Rollover Value, (B) the product of the Additional Rollover Shares Number and the Per Share Amount (subject to the adjustment provided in Section 2.2.7), (C) the Aggregate Spread Amount, (D) any Rollover Payments and (E) the Other Consideration Amount shall be equal to $4,000,000. The "AGGREGATE SPREAD AMOUNT" shall be equal to the excess of the aggregate cash amount that would be paid in the Merger with respect to the shares of Common Stock subject to the Contributed Options, if the Contributed Options were exercised, over the aggregate exercise price with respect to the Contributed Options, as reduced by any required withholdings of taxes. The "OTHER CONTRIBUTING STOCKHOLDERS" shall mean certain members of management and employees of the Company (other than Robert Antin). 8.3.10. MANAGEMENT SERVICES AGREEMENT. The Company (and/or the Subsidiaries) shall have executed and delivered the management services agreement prior to the Closing. 8.3.11. STOCKHOLDERS AGREEMENT. Each of the respective parties to the Stockholders Agreement (other than Parent, Leonard Green & Partners, L.P. or any of their Affiliates) shall have executed and delivered such agreement prior to the Closing. 8.3.12. EMPLOYMENT AGREEMENTS. Each of Robert Antin and Arthur Antin shall have executed and delivered an employment agreement substantially in the forms attached hereto as EXHIBIT B and EXHIBIT C prior to the Closing. 8.3.13. CANCELLATION OF OPTIONS. The Company shall have obtained the rollover, the exercise or the cancellation of the Options and Rollover Options as Page 44 set forth in Section 2.6 and received any necessary agreements, approvals or consents from the holders thereof. 8.3.14. RESIGNATION OF DIRECTORS. All of the directors of the Company, other than those persons set forth on the Disclosure Schedule, shall have resigned from the Company Board effective as of the Closing Date. 8.4. ASSET DROP DOWN. The Company and Operating Company shall have consummated the Asset Drop Down. ARTICLE 9. TERMINATION 9.1. TERMINATION. Anything herein or elsewhere to the contrary notwithstanding, this Agreement may be terminated and the transactions contemplated hereby abandoned at any time prior to the Effective Time, whether before or after stockholder approval of the Merger: 9.1.1. MUTUAL CONSENT. By mutual written consent of the parties hereto; 9.1.2. BY RECAP. By Recap, if (i) any of the conditions set forth in Section 8.1 or 8.3 shall have become incapable of fulfillment (other than as a result of a breach of this Agreement by Recap); or (ii) the Company Board or any committee thereof fails to recommend or withdraws or modifies or resolves to withdraw or modify its recommendation of the Merger, whether or not in compliance with Section 7.5 hereof; 9.1.3. BY THE COMPANY. By the Company, if (i) any of the conditions set forth in Section 8.1 or 8.2 shall have become incapable of fulfillment (other than as a result of a breach of this Agreement by the Company); (ii) the Company Board has approved a Superior Proposal in accordance with the terms of Section 7.5; or (iii) the Company Board withdraws its recommendation of the transactions contemplated hereby in accordance with the terms of Section 7.5; 9.1.4. FAILURE OF CONDITIONS. By Recap or the Company, if the transactions contemplated hereby are not consummated on or before September 30, 2000, but only if the failure to consummate such transactions on or before such date did not result from the breach of any representation, warranty or agreement herein of the party seeking such termination; 9.1.5. BREACH OF COVENANT. By Recap or the Company, if the other party shall be in material breach of any of its covenants contained in this Agreement and such breach either is incapable of cure or is not cured within 20 Business Days after notice from the party wishing to terminate; PROVIDED that the party seeking such termination shall not also then be in material breach of this Agreement; PROVIDED, FURTHER, that any material breach of the provisions of Section 7.5 hereof shall entitle Recap to an immediate right to termination without any notice or cure requirement; Page 45 9.1.6. BREACH OF REPRESENTATIONS AND WARRANTIES. By Recap or the Company, if the other party shall be in breach of any of its representations or warranties contained in this Agreement, which breach, individually or together with all other breaches, is reasonably expected to have a Material Adverse Effect on the Company or Recap, as applicable, and such breach either is incapable of cure or is not cured within 20 Business Days after notice from the party wishing to terminate; PROVIDED, that the party seeking such termination shall not also then be in material breach of this Agreement; or 9.1.7. BY THE COMPANY OR RECAP: By either Recap or the Company, if a Governmental Entity shall have issued a non-appealable final order, decree or ruling or taken any other action having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger or the Recapitalization (provided that (i) if the party seeking to terminate this Agreement pursuant to this Section 9.1.7 is subject to such order, decree or ruling, it shall have used all reasonable efforts to have such order, decree or ruling removed and (ii) the right to terminate this Agreement under this Section 9.1.7 shall not be available to any party who has not complied with its obligations under Sections 7.8 and 7.16 and such noncompliance materially contributed to the issuance of any such order, decree or ruling or the taking of such action). 9.2. MANNER AND EFFECT OF TERMINATION. Termination shall be effected by the giving of written notice to that effect by the party seeking termination. If this Agreement is validly terminated and the transactions contemplated hereby are not consummated, this Agreement shall become null and void and of no further force and effect and no party shall be obligated to the others hereunder; PROVIDED, HOWEVER, that termination shall not affect (i) the rights and remedies available to a party as a result of the breach by the other party or parties hereunder (PROVIDED that the provisions of Section 9.3 shall constitute the exclusive legal remedy of Recap with respect to a breach by the Company described therein, and the payment by the Company of the Termination Fee and any expenses shall constitute the exclusive legal remedy of Recap for breaches of this Agreement in the event of the Company's acceptance of a Superior Proposal or the withdrawal by the Company Board of its recommendation of the transactions contemplated hereby, each as contemplated by Section 7.5), (ii) the provisions of Sections 5.11, 6.5, 10.1, 10.2, 10.4 and 10.9 hereof, or (iii) the obligations of the Company pursuant to Section 9.3 below. 9.3. CERTAIN PAYMENTS UPON TERMINATION. 9.3.1. In the event that: (A) the Company terminates this Agreement under Section 9.1.3(ii) or Section 9.1.3(iii), or (B) Recap terminates this Agreement under Section 9.1.2(ii), the Company shall pay to Recap a termination fee in the amount of $10,000,000 (the "TERMINATION FEE"). 9.3.2. In the event that (A) a Termination Fee is not otherwise payable to Recap pursuant to Section 9.3.1 and (B) (i) Recap terminates this Agreement under Section 9.1.5 or 9.1.6, or (ii) this Agreement is terminated due to a failure of the condition set forth in Section 8.1.4, the Company shall pay to Recap all fees and expenses (including those of counsel, accountants and other advisors and in connection with the Financings) incurred by any of Recap and its Affiliates in connection with the transactions contemplated by this Agreement ("EXPENSES"); PROVIDED, HOWEVER, such Expenses shall not exceed $1,000,000. Page 46 All payments required to be made hereunder shall be made by wire transfer of immediately available funds within two (2) Business Days of the event giving rise to the payment of such Expenses. The Company acknowledges that the agreements contained in this Section 9.3 are an integral part of the transactions contemplated by this Agreement and that, without said agreements, Recap would not enter into this Agreement; accordingly, if the Company fails promptly to pay the Termination Fee and Expenses due pursuant to this Section 9.3, and, in order to obtain such payment, Recap commences a suit which results in a judgment against the Company for the fees and expenses set forth herein, the Company will pay to Recap its reasonable expenses (including attorneys' fees and expenses) in connection with such suit, together with interest on the amounts due hereunder at the legal rate determined by the court rendering such judgment. ARTICLE 10. MISCELLANEOUS 10.1. CONFIDENTIALITY. The Company agrees that from the Original Agreement Date until the Closing Date or earlier termination of this Agreement it will not, and will use reasonable best efforts to ensure that none of its directors, officers, Representatives, agents or employees will, without the prior written consent of Recap, submit or disclose to or file with any other Person, or use, any confidential or non-public information relating to the Company or Recap, except for such disclosure as may be required by Law, applicable accounting regulations and as permitted pursuant to the provisions of Section 7.5 hereof. Recap agrees that from the Original Agreement Date until the Closing Date or earlier termination of this Agreement it will not, and will use reasonable best efforts to ensure that none of its directors, officers, Representatives, agents or employees will, without the prior written consent of the Company, submit or disclose to or file with any other Person, or use, any confidential or non-public information relating to the Company, except for such disclosure as may be required by Law or applicable accounting regulations. Without limiting the generality of the foregoing, Recap and the Company agree and acknowledge that they will continue to be bound by the Confidentiality Agreement dated November 15, 1999 between the Company and Leonard Green & Partners, L.P. 10.2. EXPENSES. Except as otherwise specifically provided for herein (including without limitation under Article 9 hereof), each of the Company, on the one hand, and Recap, on the other, shall pay all of its costs and expenses (including attorneys', accountants' and investment bankers' fees) incurred in connection with this Agreement and the transactions contemplated hereby. 10.3. NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given upon receipt if delivered personally or sent by facsimile transmission (receipt of which is confirmed) or by courier service promising overnight delivery (with delivery confirmed the next day) or three (3) Business Days after sent by registered or certified mail (postage prepaid, return receipt requested). Notices shall be addressed as follows: To The Company: Veterinary Centers of America, Inc. 12401 West Olympic Boulevard Los Angeles, California 90064 Page 47 Attention: Chief Executive Officer Facsimile: (310) 584-6701 With a copy to: Troop Steuber Pasich Reddick & Tobey, LLP 2029 Century Park East, Twenty-Fourth Floor Los Angeles, California 90067 Attention: C.N. Franklin Reddick III, Esq. Facsimile: (310) 728-2304 To Recap: Vicar Recap, Inc. 11111 Santa Monica Blvd. Los Angeles, California 90025 Attention: John Baumer Facsimile: (310) 954-0404 With a copy to: Irell & Manella LLP 333 S. Hope Street, Suite 3300 Los Angeles, California 90071 Attention: Anthony T. Iler, Esq. Facsimile: (213) 229-0515 To the Special c/o Veterinary Centers of America, Inc. Committee: 12401 West Olympic Boulevard Los Angeles, California 90064 Attention: John Chickering Facsimile: (310) 584-6701 With a copy to: Latham & Watkins LLP 633 West Fifth Street, Suite 4000 Los Angeles, California 90071 Attention: Paul Tosetti, Esq. Facsimile: (213) 891-8763 Either party may from time to time change its address for the purpose of notices by a similar notice specifying the new address but no such change shall be effective as against any Person until such Person shall have actually received it. 10.4. ENTIRE AGREEMENT. This Agreement contains the final and entire agreement between the parties with respect to the transactions contemplated hereby and supersedes all written or verbal representations, warranties, commitments and other understandings prior to the date hereof, other than the Confidentiality Agreement, dated November 15, 1999. No reference shall be made to any draft of this Agreement for purposes of interpretation or resolution of ambiguity or otherwise. All Schedules referred to herein, are hereby incorporated in and made a part of this Agreement as if set forth in full herein. 10.5. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Page 48 10.6. SEVERABILITY. If any provision hereof shall be held to be unenforceable or invalid by any court of competent jurisdiction or as a result of future legislative action, such holding or action shall be strictly construed and shall not alter the enforceability, validity or effect of any other provision hereof. 10.7. ASSIGNABILITY. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and permitted assigns; PROVIDED, HOWEVER, that neither this Agreement nor any right or obligation hereunder may be assigned by any party without the prior written consent of the other parties to be given in the other parties' sole discretion. 10.8. CAPTIONS. The descriptive headings herein are inserted for convenience only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 10.9. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. 10.10. SPECIFIC PERFORMANCE. The parties hereto agree that if any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached, irreparable damage would occur, no adequate remedy at law would exist and damages would be difficult to determine, and that the parties shall be entitled to specific performance of the terms hereof (without requirement to post bond), in addition to any and all other remedies at law or in equity. 10.11. AMENDMENT AND WAIVER. This Agreement may be amended, modified or supplemented at any time, whether before or after stockholder approval, only by an instrument in writing signed by all parties hereto; PROVIDED, HOWEVER, this Agreement may not be amended, modified or supplemented following approval of the Merger by the holders of the Company's outstanding capital stock entitled to vote thereon without the further approval of such stockholders if such amendment, modification or supplement would adversely affect such stockholders and the further approval of the Special Committee if such amendment, modification or supplement would adversely affect the Company. No waiver by any party of any of the provisions hereof shall be effective unless set forth in writing and executed by the party so waiving. Any waiver or failure to insist upon strict compliance with any obligation, covenant, agreement, provision, term or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure to comply. 10.12. ACTIONS BY THE COMPANY. Any action requiring the approval of the Company Board which is to be taken or which is made or required to be taken or made by or for the benefit of the Company pursuant to, in connection with, or in furtherance of this Agreement shall, prior to the Effective Time, be made or taken, as applicable, upon the recommendation of and with the approval of the Special Committee. 10.13. FURTHER ASSURANCES. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use all reasonable best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable, whether under applicable laws and regulations or otherwise, to remove any Page 49 injunctions or other impediments or delays, legal or otherwise, in order to consummate and make effective the transactions contemplated by this Agreement. 10.14. PUBLICITY. Except as hereinafter provided, the Company and Recap shall not, and each of them shall use reasonable best efforts to cause their respective directors, officers, employees, Representatives and agents not to, discuss publicly or make any public statement with respect to this Agreement or the transactions contemplated hereby without the other party's approval. Before making any such public announcements, the parties hereto shall use good faith efforts to agree upon the text of a joint announcement to be made by the parties hereto or use good faith efforts to obtain the other party's approval of the text of any public announcement to be made solely on behalf of such party. If the parties hereto are unable to agree on or approve such a public statement or announcement and legal counsel for a party is of the opinion that such statement or announcement is required by law or the rules of any stock exchange on which the Company's securities are traded or the NASD, then such party may make or issue the legally required statement or announcement. 10.15. FORCE MAJEURE. Anything to the contrary in this Agreement notwithstanding, no party hereto shall be liable to the other parties hereto for any loss, injury, delay, damages or other casualty suffered or incurred by such other party hereto due to strikes, riots, storms, fires, explosions, acts of God, war, governmental action, or any other cause similar thereto which is beyond the reasonable control of such parties, and any failure or delay by any party hereto in performance of any of its obligations under this Agreement due to one or more of the foregoing causes shall not be considered as a breach of this Agreement. In the event that performance of any of the material obligations under this Agreement shall be suspended due to one or more of the foregoing causes and such suspension shall have a material adverse impact on consummation of the transactions as contemplated in this Agreement or on the operations or financial condition or prospects of the Company, then the aggrieved party which shall be materially and adversely affected thereby may terminate this Agreement. 10.16. ATTORNEYS' FEES. In any suit or proceeding arising out of this Agreement or to interpret or enforce any provision of this Agreement, the prevailing party shall be entitled to all reasonable out-of-pocket expenses and reasonable attorneys' fees incurred by such party in connection with such suit or proceeding. 10.17. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time. 10.18. ORIGINAL AGREEMENT DATE; CONSTRUCTION. Certain covenants in this Agreement refer to a party taking or omitting to take an action from and after the Original Agreement Date. All such references, whether stated only in the future tense, or in the past and future tense, shall be deemed to include both the past (i.e., from and after the Original Agreement Date) and future tenses. Page 50 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date first written above. VETERINARY CENTERS OF AMERICA, INC., a Delaware corporation By: /S/ ROBERT ANTIN -------------------------------- Name: Robert Antin Title: Chief Executive Officer VICAR RECAP, INC., a Delaware corporation By: /S/ JOHN DANHAKL -------------------------------- Name: John Danhakl Title: President VICAR OPERATING, INC., a Delaware corporation By: /S/ ROBERT ANTIN -------------------------------- Name: Robert Antin Title: Chief Executive Officer Page 51 ANNEX A SUMMARY OF TERMS OF PREFERRED STOCK OF THE SURVIVING CORPORATION. SERIES A PREFERRED STOCK SECURITY 14% Series A Senior Redeemable Exchangeable Cumulative Preferred Stock ("Series A Preferred Stock") ISSUER The Surviving Corporation (the "Issuer") DIVIDENDS 14% per annum, payable quarterly in cash, subject to the legal availability of funds, when and if declared by the board of directors of the Issuer. Any dividends that are not paid shall cumulate, and dividends shall compound and accrue on such cumulation (the "Dividend Cumulation"). LIQUIDATION PREFERENCE $25.00 plus the Dividend Cumulation MANDATORY REDEMPTION Mandatorily redeemable in whole after 12 years at the Liquidation Preference. OPTIONAL REDEMPTION Subject to the legal availability of funds, the Issuer shall have the option to redeem the Series A Preferred Stock beginning on a specified anniversary of issuance pursuant to a customary declining-percentage-of-face matrix (subject to the reasonable approval of the Board of Directors of Veterinary Centers of America, Inc.), together with the Dividend Cumulation. VOTING No voting rights, except (i) as required by state and other applicable law and (ii) that holders of a majority of the outstanding shares of Series A Preferred Stock, voting as a separate class, will (a) have the right to approve each issuance by the Issuer of any securities that rank senior to the Series A Preferred Stock as to dividends or upon a liquidation and (b) have the right to approve any amendment to the Issuer's certificate of Page 52 incorporation that is adverse to holders of the Series A Preferred Stock. CHANGE IN CONTROL Each holder will have the right to "put" the Series A Preferred Stock to the Issuer at 101% of face upon a change in control, together with the Dividend Cumulation. RANKING The Series A Preferred Stock will rank senior to all classes of capital stock of the Issuer. EXCHANGE FEATURE The Series A Preferred Stock shall be exchangeable at the option of the Issuer for debt securities (which debt securities shall not be convertible into common stock or securities convertible into common stock), the terms of which are to be determined. NOT CONVERTIBLE The Series A Preferred Stock shall not be convertible into common stock or securities convertible into common stock. SERIES B PREFERRED STOCK SECURITY 12% Series B Junior Redeemable Cumulative Preferred Stock ("Series B Preferred Stock") ISSUER The Surviving Corporation (the "Issuer") DIVIDENDS 12% per annum, payable quarterly in cash, subject to the legal availability of funds, when and if declared by the board of directors of the Issuer. Any dividends that are not paid shall cumulate, and dividends shall compound and accrue on such cumulation (the "Dividend Cumulation"). LIQUIDATION PREFERENCE $25.00 plus the Dividend Cumulation MANDATORY REDEMPTION Mandatorily redeemable in whole after 12 years at the Liquidation Preference. OPTIONAL REDEMPTION Subject to the legal availability of funds, the Issuer shall have the option to redeem the Series B Preferred Stock beginning on a specified anniversary of issuance pursuant to a customary Page 53 declining-percentage-of-face matrix (subject to the reasonable approval of the Board of Directors of Veterinary Centers of America, Inc.), together with the Dividend Cumulation. VOTING No voting rights, except (i) as required by state and other applicable law and (ii) that holders of a majority of the outstanding shares of Series B Preferred Stock, voting as a separate class, will (a) have the right to approve each issuance by the Issuer of any securities that rank senior to the Series B Preferred Stock as to dividends or upon a liquidation or securities that rank on a parity with the Series B Preferred Stock as to dividends or upon a liquidation and (b) have the right to approve any amendment to the Issuer's certificate of incorporation that is adverse to holders of the Series B Preferred Stock. CHANGE IN CONTROL Each holder will have the right to "put" the Series B Preferred Stock to the Issuer at 101% of face upon a change in control, together with the Dividend Cumulation. RANKING The Series B Preferred Stock will rank senior to all classes of capital stock of the Issuer other than the Series A Preferred Stock and will rank junior to the Series A Preferred Stock. NOT CONVERTIBLE The Series B Preferred Stock shall not be convertible into common stock or securities convertible into common stock. Page 54 EXHIBITS Exhibit A Voting Agreement Exhibit B Employment Agreement of Robert Antin Exhibit C Employment Agreement of Arthur Antin Page 55 EX-21 16 ex-21_1.txt EXHIBIT 21.1 - LIST OF SUBSIDIARIES EXHIBIT 21.1 VCA ANTECH, INCORPORATED SUBSIDIARIES JURISDICTION OF ORGANIZATION / NAME OF SUBSIDIARY FORMATION - --------------------------------------------- ---------------- AAH Merger Corporation Delaware Academy Animal, Inc. Maryland All Pet Complex Utah Anderson Animal Hospital, Inc. Colorado Animal Center, Inc. California Animal Clinic of Santa Cruz, Inc. California Animal Emergency Clinic, P.C. Illinois Animal Hospital of St. Petersburg, LLC California Asher Veterinary Medical Clinic California Beaumont Veterinary Associates, P.C. Texas BerLa, Inc. California Black Mountain Animal Hospital, L.P. California Cacoosing Animal Hospital, Ltd. Pennsylvania Cacoosing Pet Care & Nutrition Center, Inc. Pennsylvania Castle Shannon Pet Store, Inc. California Clarmar Animal Hospital, Inc. California Detwiler Veterinary Clinic, Inc. Pennsylvania Diagnostic Veterinary Service, Inc. California Eagle Park Animal Clinic, Inc. Indiana Eagle River Veterinary Hospital, Inc. Alaska Edgebrook, Inc. New Jersey Florida Veterinary Laboratories, Inc. Florida Fox Chapel Animal Hospital, Inc. Pennsylvania Freehold, Inc. New Jersey Glen Animal Hospital, Inc. New York Golden Merger Corporation Delaware H.B. Animal Clinics, Inc. California Highlands Animal Hospital, Inc. Virginia Howell Branch Animal Hospital, P.A. Florida Kirkwood Animal Hospital-Lea M.E. Tammi, V.M.D., P.A. Delaware Page 1 Kirkwood Animal Hospital Boarding and Grooming, Inc. Delaware Lake Jackson Veterinary Clinic, Inc. Texas Lakeside Animal Partnership California Lakewood Animal Hospital, Inc. California Lammers Veterinary Hospital, Inc. California Lewelling Veterinary Clinic, Inc. California M.S. Animal Hospitals, Inc. California Main Street Small Animal Hospital, Inc. California Miller Animal Hospital California Newark Animal Hospital, Inc. Delaware North Rockville Veterinary Hospital, Inc. Maryland Northern Animal Hospital, Inc. Arizona Northside Animal Hospital, P.C. Connecticut Noyes Animal Hospital, Inc. Illinois Oak Hill Animal Hospital, Inc. Massachusetts Old Town Veterinary Hospital, Inc. Virginia Pet Practice (Massachusetts), Inc. Delaware Pets' Rx Nevada, Inc. Nevada Pets' Rx, Inc. Delaware PPI of Pennsylvania, Inc. Delaware Princeton Animal Hospital, Inc. California Professional Veterinary Services, Inc. Indiana Riviera Animal Hospital, Inc. Florida Robertson Blvd. Animal Hospital, Inc. California Rossmoor - El Dorado Animal Hospital, Inc. California Rossmoor Center Animal Clinic, Inc. California San Vicente Animal Clinic California Silver Spur Animal Hospital, Inc. California South County Veterinary Clinic, Inc. California Southeast Area Veterinary Medical Center, P.C. Colorado Spanish River Animal Hospital, Inc. Florida Spring Mountain Animal Hospital, LLC Nevada Tampa Animal Medical Center, Inc. Florida The Pet Practice (Massachusetts), Inc. Massachusetts Page 2 The Pet Practice (Florida), Inc. Delaware The Pet Practice (Illinois), Inc. Delaware The Pet Practice of Michigan, Inc. Delaware VCA - Asher, Inc. California VCA - Rossmoor, Inc. California VCA Alabama, Inc. Alabama VCA Albany Animal Hospital, Inc. California VCA Albany Animal Hospital California VCA Albuquerque, Inc. California VCA All Pets Animal Complex, Inc. California VCA Alpine Animal Hospital, Inc. California VCA Ana Brook Animal Hospital California VCA Anderson of California Animal Hospital, Inc. California VCA Animal Hospital West, Inc. California VCA Animal Hospitals, Inc. California VCA APAC Animal Hospital, Inc. California VCA Associates Animal Hospital, L.P. California VCA Bay Area Animal Hospital, Inc. California VCA Cacoosing Animal Hospital, Inc. California VCA Castle Shannon Veterinary Hospital, Inc. California VCA Centers-Texas, Inc. Texas VCA Cenvet, Inc. California VCA Clarmar Animal Hospital, Inc. California VCA Clinical Veterinary Labs, Inc. California VCA Clinipath Labs, Inc. California VCA Closter, Inc. New Jersey VCA Coast Animal Hospital LLC California VCA Companion Animal Hospital, L.P. California VCA Detwiler Animal Hospital, Inc. California VCA Dover Animal Hospital, Inc. Delaware VCA Eagle River Animal Hospital, Inc. California VCA East Anchorage Animal Hospital, Inc. California VCA Golden Cove Animal Hospital, Inc. California VCA Greater Savannah Animal Hospital, Inc. California Page 3 VCA Greater Savannah Animal Hospital, L.P. California VCA Heritage Animal Hospital, LP California VCA Howell Branch Animal Hospital, Inc. California VCA Information Systems, Inc. California VCA Kaneohe Animal Hospital, Inc. California VCA Kenwood Animal Hospital L.P. California VCA Lakeside Animal Hospital, Inc. California VCA Lamb and Stewart Animal Hospital, Inc. California VCA Lammers Animal Hospital, Inc. California VCA Lewis Animal Hospital, Inc. California VCA MacArthur Animal Hospital L.P. California VCA Marina Animal Hospital, Inc. California VCA Miller Animal Hospital, Inc. California VCA Mission, Inc. California VCA New London Vet. Hospital L.P. California VCA Northboro Animal Hospital, Inc. California VCA Northwest Veterinary Diagnostics, Inc. California VCA of Colorado-Anderson, Inc. California VCA of New York, Inc. Delaware VCA of San Jose, Inc. California VCA of Teresita, Inc. California VCA Oneida Animal Hospital L.P. California VCA Professional Animal Laboratory, Inc. California VCA Real Property Acquisition Corporation California VCA Referral Associates Animal Hospital, Inc. California VCA Rohrig Animal Hospital, Inc. California VCA Rohrig Animal Hospital California VCA Rome Animal Hospital L.P. California VCA Santa Anita Animal Hospital L.P. California VCA Silver Spur Animal Hospital, Inc. California VCA South County Animal Hospital, LLC California VCA South Shore Animal Hospital, Inc. California VCA Spanish River Animal Hospital, L.P. Delaware VCA Specialty Pet Products, Inc. California Page 4 VCA Squire Animal Hospital, Inc. California VCA St. Petersburg Animal Hospital, Inc. California VCA Texas Management, Inc. California VCA Triangle Tower Animal Hospital, L.P. California VCA Twin Rivers Animal Hospital LLC Delaware VCA Villa Animal Hospital, L.P. California VCA Wyoming Animal Hospital, Inc. California Veterinary Centers of America, Inc. Delaware Veterinary Centers of America- Texas, L.P. Texas Veterinary Hospitals, Inc. California Vicar Operating, Inc. Delaware W.E. Zuschlag, D.V.M., Worth Animal Hospital, Chartered Illinois West Los Angeles Veterinary Medical Group, Inc. California Westwood Dog & Cat Hospital California William C. Fouts, D.V.M., Ltd. Nevada Wingate, Inc. Colorado Wisdom Group, L.P. California Page 5 EX-23 17 ex-23_1.txt EXHIBIT 23.1 - CONSENT OF ARTHUR ANDERSON LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use in this registration statement of our report dated March 28, 2001 included herein and to all references to our Firm included in this registration statement. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Los Angeles, California August 7, 2001 -----END PRIVACY-ENHANCED MESSAGE-----